Paula Navarro
Senior Associate at Clifford Chance


The framework for the EU Taxonomy is set out in EU Regulation (Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020), – as supplemented by several subsequent delegated acts –, which came into force on 12 July 2020 and is applicable to all EU Member States (the "Taxonomy Regulation").

The Taxonomy Regulation establishes six environmental objectives: (i) climate change mitigation, (ii) climate change adaptation, (iii) the sustainable use and protection of water and marine resources, (iv) the transition to a circular economy, (v) pollution prevention and control, and (vi) the protection and restoration of biodiversity and ecosystems (the "Environmental Objectives").

In accordance with the Taxonomy Regulation, an economic activity shall qualify as environmentally sustainable where that economic activity:

(a) makes a substantial contribution to one or more of the Environmental Objectives. The Taxonomy Regulation differentiates between two types of substantial contributions (i) economic activities that make a substantial contribution based on their own performance and (ii) enabling activities that by provision of the product or service enable a substantial contribution to be made in other activities;

(b) does not significantly harm any of the other environmental objectives;

(c) meets the minimum safeguards (i.e. OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights); and

(d) complies with the technical screening criteria established by the Commission.

In a nutshell, the EU Taxonomy is intended to help investors, companies, issuers and project developers through the transition to a low-carbon and resource-efficient European economy, by, among other provisions, setting out clear and transparent performance thresholds (the so-called technical screening criteria) to access "sustainable" financing.


2.1 Taxonomy Regulation affecting the real estate sector

Focusing on the construction and real estate sector, it must be noted that, according to several studies[1], the construction and real estate sector is responsible for approximately 40% of global energy consumption and the same amount in total greenhouse gas emissions. Therefore, it is a critical sector to consider for the achievement of the 2050 carbon-neutral objective.

The eligible real estate activities under the EU Taxonomy Regulation are:

(a) construction of new buildings;

(b) building renovations (example of an own-performance economic activity substantially contributing to an environmental objective);

(c) individual renovation measures, installation of renewables on site and professional, scientific and technical activities, and

(d) acquisition and ownership of buildings.

2.2 The EU Taxonomy from an ESG (Environmental, Social and Governance) perspective

ESG stands for Environmental, Social and Governance and refers to a set of environmental, social and governance criteria that are integrated into a company's business strategy and are considered by investors when making sustainable investments.

Although ESG's origins go back several decades, in recent years it has become the benchmark for socially responsible investment.

The EU Taxonomy has significant implications for the real estate sector from an ESG perspective:

(a) Environmental: the EU Taxonomy focuses primarily on environmental sustainability and sets clear criteria for the identification of sustainable economic activities in this area. In the real estate sector, this means that construction projects that meet the EU Taxonomy's criteria are considered more environmentally sustainable, which can generate confidence among investors and consumers.

(b) Social: while the EU Taxonomy focuses primarily on environmental sustainability, it also has social implications. For example, some of the EU Taxonomy's criteria refer to the inclusion of sustainable solutions in real estate projects to address social problems such as homelessness, energy poverty and access to basic services. In this sense, the EU Taxonomy can promote more inclusive and socially responsible real estate projects.

(c) Corporate governance: the EU Taxonomy also sets clear and uniform criteria for transparency and accountability in assessing the sustainability of real estate projects. This can improve the corporate governance of companies in the real estate sector and increase investor and consumer confidence.


The most obvious is that it promotes sustainability, as it has been designed to identify and classify sustainable economic activities. In the real estate sector, this means that construction projects that meet the EU Taxonomy's criteria are considered more sustainable and environmentally friendly.

The EU Taxonomy builds trust, as it provides a standardised and transparent methodology for assessing and communicating the sustainability of real estate projects. This helps to build investor and consumer confidence by providing clear and objective information on project sustainability.

Furthermore, it encourages innovation in the real estate sector by identifying areas where sustainability improvement is required. This can motivate companies and investors to invest in new technologies and more sustainable practices.

On a less positive note, however, we cannot ignore the fact that implementing the Taxonomy Regulation could be costly for companies in the real estate sector. Data collection and sustainability assessment can require significant resources and are time consuming, which can be an obstacle for smaller or less well-resourced companies.

The EU Taxonomy is a detailed and complex tool which still lacks completeness and clarity. It can therefore be difficult for some companies in the real estate sector to understand and apply it, which can lead to confusion and delays in project implementation.

By way of conclusion, the EU Taxonomy is a hot topic, which is yet to be fully developed and implemented, but one that in any case will need to be factored into investment decisions in many sectors, particularly in the real estate sector.

[1] For instance, "EU TAXONOMY STUDY – Evaluating the market-readiness of the EU taxonomy criteria for buildings", published in March 2021, among others, by the GBCe (Green Building Council España).

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