Analysing the role and relevance of the value chain in the context of the EU’s Taxonomy Regulation (the Taxonomy) is critical to fully grasp its operation and impact. This analysis has relevance not only in the overall approach of economic agents to the Taxonomy, particularly concerning its integration into their strategies, but also in the concrete and very practical aspects of carrying out alignment checks.
The Taxonomy was approved in June 2020 in the context of international and European efforts towards sustainable development; most notably:
The 2030 Agenda for Sustainable Development, approved in 2015 by the United Nations;
The European Commission’s 2018 Action Plan: Financing Sustainable Growth.
Sustainable growth is hinged on a reorientation of capital flows towards sustainable activities and investments, and the Taxonomy plays a central role in this process. It is an objective and technically robust classification system to determine whether activities are effectively sustainable, generating a renewed level of confidence for investors and a real possibility of comparing investments without greenwashing distortions.
It is in the performance of this function by the Taxonomy that an understanding of the impacts on the value chain develops special relevance. The obligation to disclose that is included in the classification system (Article 8 of the Taxonomy and the Disclosures Delegated Act (Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021)) serves as motivation for redirecting capital, because of the sheer pressure arising from comparing the classification of different companies and the image that comes with such standing. The investor-related aspect of the value chain is very evident and central to the way the Taxonomy works. But there are also less apparent value chain aspects that exist notwithstanding the fact that the Taxonomy is not, by design and structure, a value chain instrument. This is the issue tackled in this article.
This analysis is not affected by the current effort to simplify European sustainability legislation. Both the ‘omnibus’ proposals (COM(2025) 81 final and COM(2025) 80 final) and the proposal to simplify information obligations under the Taxonomy introduce very important changes, but even if approved, they bear no direct implications for the assessment at hand. The same applies to the conclusions of the EU Platform on Sustainable Finance in its report Simplifying the EU Taxonomy to Foster Sustainable Finance, published on February 5 2025.
The value chain
As mentioned, the Taxonomy is a sustainable classification system for activities and investments, analysing activities and investments in themselves, without having a structural value chain analysis perspective, as happens with other sustainability information tools. The technical criteria are assessed by each activity and are not inherently applicable with a value chain approach. Even in cases where a company carries out more than one eligible activity in the value chain, there is no value chain implication in the collective assessment of activities. According to an example put forward by the European Commission (question 29 of Commission Notice C/2023/305 of October 20 2023), if a company sustainably produces cement and uses it for non-sustainable construction, the latter fact has no implication regarding the sustainability of the cement production activity.
Nevertheless, the value chain has a decisive effect on several Taxonomy aspects and drives sustainability beyond the economic agent that is subject to reporting obligations, thus extending to other economic agents.
Besides the more structural case of investors using the Taxonomy as a tool to guide their investments, which is at the heart of the Taxonomy’s operation and objectives, the following relevant situations in the value chain merit a separate analysis:
Capital expenditure (Capex) and operating expenditure (Opex) type C;
Subcontracted activities;
Alignment of suppliers; and
Credit institutions.
Capex and Opex type C
Sustainability assessments based on technical criteria refer to activities that, pursuant to the Taxonomy framework, merit a dichotomous assessment to determine whether they are aligned. From the perspective of a company or an investment spanning several activities, the filter of turnover, Capex, or Opex key performance indicators (KPIs) is necessary to ascribe a relative importance to each of the aligned activities and establish a combined sustainability ratio for the company or investment as a whole, according to each of those three KPIs.
What is not obvious from the Taxonomy’s design is that a relevant alignment can be attained from a Capex or Opex standpoint concerning non-aligned activities. However, there are three possibilities for aligned Capex and Opex within non-aligned activities, as set out in subparagraphs (b) and (c) of points 1.1.2.2 for Capex and 1.1.3.2 for Opex of Annex I to the Disclosures Delegated Act.
The case of Capex plans (subparagraph (b)) or the case of individual measures enabling the reduction of greenhouse gases that are practically configured as sub-activities (second part of subparagraph (c)) is not relevant for the purposes of this article’s analysis of the value chain. What is relevant from a value chain perspective is the case of purchasing output from aligned activities (first part of subparagraph (c)).
This discrete legal provision has a far greater practical impact in the value chain than one would simply have anticipated. A first intuition to disregard this provision would follow from its irrelevance in cases where the activity carrying out the expenditure is aligned and taxonomically sustainable. Within the scope of an aligned activity, Capex and Opex are, by default, aligned, irrespective of the aligned nature of the goods, products, and/or services acquired within its scope (subparagraph (a) of points 1.1.2.2 for Capex and 1.1.3.2 for Opex of Annex I to the Disclosures Delegated Act). It is a rule pointing in the exact opposite direction – the irrelevance of the value chain.
However, this first assessment overlooks two critical factors:
The eligibility limitations leave many companies and activities without any possibility of assessing the sustainability of their activities; and
The difficulty many activities have in achieving alignment due to technical requirements, particularly those involving “do no significant harm” (this is one of the fronts on which progress can reasonably be expected with the implementation of the simplification effort currently under way, while maintaining the relevance of the reasoning, albeit restricted to a smaller number of cases).
In all these cases, the value chain becomes critical: the alignment of expenses, whether Capex or Opex, arises only from the alignment of an activity that is carried out in the value chain and not from the activity that is carried out by the company.
If we add to this assessment the aspect of access to capital and the advantage that a company and its financier can have if, for example, an equipment purchase corresponds to aligned Capex, we can understand the impact of the value chain and the pressure it will represent for suppliers to guarantee their alignment, which will be reflected in their products and in the alignment of their customers.
By way of example, an agricultural activity that, by its very nature, cannot align its activities will give significant weight to the alignment of the transport equipment it acquires, as alignment cannot be drawn from its agricultural activity and will have to be drawn from alignment in the value chain.
Subcontracted activities
Subcontracting of activities is a reality with a substantial impact on business operations. It is the result of resource availability management processes, specialisation needs, and several other factors.
When assessing the alignment and sustainability of subcontracted activities, the alignment of the supplier must be considered, to ascertain the alignment of the company itself. Let us consider an example provided by the European Commission (question 20 of Commission Notice C/2023/305) of a company providing transport services to third parties, which, in turn, subcontract part of the activity to another transport company. In such a case, where the activity as a whole (direct and subcontracted) factors into the turnover KPI, the proportion of aligned turnover is directly dependent on what happens in the value chain.
Any company wanting to ensure the alignment and sustainability of its activity and resorting to other entities to carry out part of the activity – which will, in turn, be reflected in its turnover – will have to demand that the subcontractor fulfils the same technical criteria as the contracting company.
This phenomenon will not have the same impact on all activities, but there are many activities with a significant impact on the business fabric where this is the case. Construction companies are another example.
The impact of this regime can be felt even more acutely in a more uncertain area of the Taxonomy, as it remains less explored. Often, the same overall service or product, provided and billed by a company, comprises different underlying activities, and the respective revenue can be allocated to each of these activities. For example, the sale of a horticultural product may have a significant transport component, so part of the turnover and its alignment may be allocated to this transport activity (question 22 of Commission Notice C/2023/305 provides an example involving a contract to build infrastructure for the production of renewable energies). If we add to this example the subcontracting scheme under analysis, we can see the potential for multiplying value chain impacts: in our example, the company selling vegetables will be interested in the alignment of the subcontracted transport company, an activity with a value that is also included in the total amount invoiced to its customers. The sustainability of the third-party transport activity will have a direct impact on the sustainability of part of the company’s turnover.
It is therefore clear that the phenomenon of impact from alignment in the value chain also features in subcontracting, with effects that amplify the Taxonomy in the economy in general, orienting capitals towards sustainability.
Alignment of suppliers
Although alignment assessment is based on technical criteria focusing on the company itself, there are many events where compliance with technical criteria depends on suppliers.
A construction company cannot carry out a job in which the alignment is contingent on a certain maximum water flow rate in the bathroom taps if its tap suppliers do not make taps available with these technical specifications. A maritime transport company cannot ensure the alignment of its activity if the manufacturers of marine engines do not offer products with the appropriate level of emissions.
This phenomenon extends across the Taxonomy as a whole. In some cases, activities in the value chain have specific technical criteria for their own activities, while in others there are no such criteria. In either case, the need to be on the market and competitive means that one has to pay attention to the technical criteria of the downstream aspects of the Taxonomy and present solutions to customers accordingly.
The issue of not significantly harming the objective of pollution prevention and control is particularly evident on this front. In cases where suppliers are not prepared to guarantee the chemical components that exist, or do not exist, in the commodities they supply, the alignment of their customers is not possible.
Despite the simplicity of this approach, this relationship between the customer and the supplier, with a direct impact on the ability to fulfil certain technical criteria, is the Taxonomy’s most effective value chain instrument. In many cases, even companies that strategically prefer not to make alignment efforts are affected by their business partners’ decision to pursue alignment.
Credit institutions
Credit institutions are a particular type of business among financial institutions with regard to the impacts of the Taxonomy from a value chain perspective.
This article does not disregard the general Taxonomy framework for financial products (see articles 5 and 6 of the Taxonomy and Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector), nor the Taxonomy reporting obligations of asset managers, investment companies, or insurers (in the three cases with specific information obligations under the Disclosures Delegated Act). However, credit institutions have a special impact on smaller companies that is worth highlighting.
The Taxonomy-related assessment of a bank’s sustainability results indirectly from the sustainability of the entities and projects to which it is exposed. The bank does not carry out the direct economic activities whose technical criteria are governed by the Taxonomy; on the contrary, the banking activity is measured according to the bank’s balance sheet and the proportion of the bank’s exposure to activities and companies that are subject to the Taxonomy’s technical criteria assessment.
The impact on the value chain is clear: it is the sustainability of the customers that determines the bank’s sustainability. The most relevant sustainability ratio imposed by the Taxonomy on banks – namely, the green assets ratio – reflects the proportion of the balance sheet corresponding to activities aligned with the Taxonomy.
The extent of this impact is further determined by the fact that banks may have two types of exposure:
Those where the purpose of the financing is known and therefore the taxonomic assessment results from an assessment of the relevant activity that is served by the funds made available; and
Those where the purpose is not known and therefore the taxonomic assessment reflects an assessment of the company as a whole.
This system generates sustainable financing opportunities for companies whose economic activity, or a large part of it, is not eligible. Consider the case where a bank finances the acquisition of an aligned equipment (Capex type C) by a company whose activities are not eligible for the Taxonomy.
This value chain effect is greatly enhanced by the fact that banks are also subject to a specific Taxonomy disclosure regime (Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022) that provides for the calculation of a ‘book Taxonomy alignment ratio’, which includes smaller companies that are not required to disclose Taxonomy information. This disclosure obligation is optional, but banks have been consensually adhering to it. It has therefore become a far-reaching element of the Taxonomy value chain, both in terms of the impact it has on those wishing to be financed and the number and size of the companies covered.
The Taxonomy and the value chain: final thoughts
The fact that the Taxonomy is a classification system based on technical criteria that refer to the activities carried out by a company does not prevent it from having a very significant impact in the value chain.
While this impact can be more or less structural in so far as a company’s Taxonomy classification is taken into account in investors’ strategy and as a condition of their investment, it is less noticeable in the mechanisms that constitute the entire fabric of the Taxonomy. Type C Capex and Opex, subcontracted activities, and the need to align suppliers are good examples in this regard. The case of banks effectively completes this value chain pressure system.
The Taxonomy is an efficient classification system with great potential and many ways of applying pressure to achieve the ultimate goal of directing investment towards sustainable activities. The Taxonomy’s relationship with the value chain is a critical part of this construction, and understanding it is key to its efficient use.
