EU Taxonomy Reporting: Incorrect Use of NACE Codes Can Lead to Greenwashing

EU Taxonomy October 28, 2022

The European Commission warns once again about the risks of solely relying on NACE codes for EU Taxonomy reporting

As organizations classify EU Taxonomy activities there is a natural tendency to overestimate eligibility. If you don’t examine each activity thoroughly, you risk  greenwashing the technical criteria associated with the activity.

The European Commission initially mentions mapping NACE codes with EU Taxonomy activities, however, they recently published a FAQs document to provide additional guidance on how to report on eligible economic activities and assets under the EU Taxonomy Regulation. The document highlights how users can use NACE code “to navigate through the Taxonomy” but warns -once again- that the scope of the activities outlined in the Climate Delegated Act should prevail.

“The NACE codes should only be understood as indicative and should not prevail over the specific definition of the activity provided in its description” – European Commission

Some background on the NACE code

The NACE code is the Statistical Classification of Economic Activities in the European Community, the industry standard used in the EU. Each activity within the EU Taxonomy will tell you the NACE code that the activity can be associated with. One thing to keep in mind is that the EU Taxonomy and the NACE code were created based on different motivations and drivers so although it is helpful to relate associated activities and even use them as a proxy when appropriate we must remember that they are not a perfect match. 

Clarity AI increases accuracy with best-in-class treatment of NACE codes

Clarity AI goes beyond the surface to not just assume direct match between the business activity and NACE code. In fact, we use the exact description in the technical annex. Looked at in detail, there are very specific definitions associated with each activity.

Let’s take “Data processing, hosting and related activities” as an example. According to the technical annex, this category could be associated with “NACE code J63.11”. Viewing the activity on its own you may assume it’s an eligible activity but if you dig into the details of the technical annex it focuses on one specific area and not the total activities listed under the NACE code.

Learn more about incorrect uses of the NACE codes through relevant case studies.

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