Loophole in EU Taxonomy

EU Taxonomy is a classification system for sustainable economic activities. It provides common definitions and criteria to promote transparency and disclosure of sustainable investments, and to support the transition towards a sustainable economy. 

These standards are voluntary guidelines used by investors to determine whether an asset is eligible for investment. However, there is a glitch in the system which is being exploited by some investors. By renovating, selling or transferring the ownership of an asset, investors and project developers can bypass some categories, for example, by renovating an asset, the “Healthy Ecosystem” requirement isn’t necessary for an assessment, and if the Project is being developed with the purpose of selling it afterwards then only two categories are required to be aligned with the guidelines which means there is no need to be 100% aligned with the standards as long as the building can be recategorize into the “Acquisition and Ownership” Asset category. This allows them to reassess the asset based only on two criteria categories: climate change mitigation and climate change adaptation. While this may be beneficial for some assets, it could have negative consequences for others. 


The impact of this glitch is twofold. First, it undermines the credibility of the EU-Taxonomy  

standards. Second, it puts pressure on compliant companies who are trying to operate within the rules. When non-compliant companies can claim compliance, it creates an uneven playing field and makes it harder for compliant companies to compete. 


This glitch has far-reaching implications. For one, it means that assets that would not have been previously considered eligible for investment may now be investable. This could lead to more money flowing into assets that are deemed to have a positive impact on the environment. Additionally, it could also lead to more real estate development projects being undertaken with the aim of mitigating or adapting to climate change. 


However, there are also some risks associated with this loophole. One is that it could be abused by investors who are more interested in making a quick profit than in having a positive impact on the environment. Additionally, it could lead to projects being undertaken for the sole purpose of earning EU Taxonomy certification, without any regard for whether those projects have a positive environmental impact. 


This loophole in EU Taxonomy standards has the potential to cause major disruptions in the real estate market. This glitch needs to be solved as soon as possible in order to protect both the environment and the economy. There are several possible solutions, but it is unclear which one will be most effective.  


Involved partners need to act in order to have a clear path for the EU Taxonomy plan and to protect the market from bad players. 



The Taxonomy is part of the EU Action Plan on Financing Sustainable Growth, and it will help provide greater clarity to investors and companies on what activities can be considered sustainable, thereby supporting more informed investment decisions. 


These criteria are divided into six categories: climate change mitigation, climate change adaptation, water stewardship, circular economy, pollution prevention, and protection of biodiversity.