The EU has a “Green Deal” in place that sets ambitious targets aimed at making Europe climate-neutral. To achieve these targets, investment needs to be channeled towards sustainable projects and companies. But what does “sustainable” mean in practice? To answer this question, the EU has the ‘EU Taxonomy’. The details are technical, but at root the taxonomy is just a way of defining what kinds of activities are sustainable. That way, investors wanting to support green activities can be sure that their money goes to the right place, and companies seeking such funding have an incentive to focus on activities that are truly green.  

So far, only large companies and financial market participants need to report in terms of the EU Taxonomy. While a big step forward, this leaves out SMEs, which account for half of GDP and two thirds of jobs in the EU, including many businesses in need of investment to scale up sustainable activities. SMEs have a key role to play in contributing to the Green Deal objectives, but the application of the EU Taxonomy to them has not been foreseen so far in order to avoid excessive administrative burdens. The specific features and needs of SMEs require a careful application of the EU Taxonomy, with a full understanding of the compliance costs as well as the potential benefits, and possibly some adaptations.

Cost-benefit analysis on applying the EU Taxonomy to SMEs

Against this backdrop, DG GROW of the European Commission has enlisted Syntesia to assess the potential costs and benefits that could be expected from applying the EU Taxonomy to SMEs. In collaboration with Trinomics and Oxford Research, the study will map the SME landscape with a view to understanding the extent to which they are involved in “Taxonomy-eligible” activities. It will then assess the potential costs in terms of reporting burdens and the benefits in terms unlocking sustainable funding sources, including with a view to the “opportunity cost” for SMEs of staying outside. Finally, the study will make recommendations about how the EU Taxonomy could be simplified for SMEs so as to minimise reporting costs while accentuating the benefits. Overall, Syntesia will help the Commission get the evidence it needs to decide whether and how to bring SMEs into the Taxonomy system, and thereby advance the green transition.