EU Taxonomy for IT & Telecommunications

What is EU Taxonomy?

The EU Taxonomy is a classification system established by the European Union through Regulation (EU) 2020/852, designed to define which economic activities can be considered environmentally sustainable. It provides companies, investors, and policymakers with a common language to identify green investments and business practices across the European single market. By setting clear, science-based criteria for sustainability, the EU Taxonomy aims to redirect capital flows toward a low-carbon, resource-efficient economy and help the EU achieve its climate neutrality goals by 2050.

EU Taxonomy and the IT & Telecommunications Industry

The IT and telecommunications sector sits at a unique crossroads in the EU Taxonomy framework. On one hand, digital infrastructure — data centers, fiber networks, mobile towers, and cloud platforms — consumes significant amounts of energy and generates measurable carbon emissions. On the other hand, digital technologies are recognized as critical enablers of the green transition across virtually every other industry, from smart energy grids to precision agriculture and remote working solutions that reduce commuting.

Telecommunications companies operating large mobile and fixed-line networks must assess whether their infrastructure deployments align with the Taxonomy's criteria for climate change mitigation and adaptation. For example, a telecom operator rolling out a 5G network that demonstrably reduces energy consumption per unit of data transmitted may qualify as a Taxonomy-aligned activity. Similarly, an IT company providing software solutions that optimize energy use in buildings or industrial processes can argue that its products enable green activities under the "enabling activity" category defined in the Taxonomy.

Data center operators face particular scrutiny. The Taxonomy sets a Power Usage Effectiveness (PUE) threshold — currently 1.5 for new data centers and 1.8 for existing ones in cooler climates — that operators must meet to qualify their facilities as environmentally sustainable. A hyperscale cloud provider constructing a new data center in Ireland, for instance, must demonstrate that its cooling systems, renewable energy sourcing, and water usage efficiency all meet these defined benchmarks. Failure to do so means that the capital expenditure related to that facility cannot be disclosed as Taxonomy-aligned in corporate sustainability reporting.

For software and IT services companies, the Taxonomy presents both an obligation and an opportunity. Those that provide carbon accounting platforms, energy management systems, or digital twins for industrial optimization are increasingly able to classify a portion of their revenue as Taxonomy-eligible. This classification directly influences how institutional investors assess the company's ESG credentials and access to green financing instruments such as green bonds or sustainability-linked loans.

Key Requirements

• Substantial Contribution to at Least One Environmental Objective: IT and telecom activities must demonstrate a meaningful positive impact on one of the six EU Taxonomy environmental objectives, which include climate change mitigation, climate change adaptation, sustainable use of water, transition to a circular economy, pollution prevention, and protection of biodiversity. For most companies in this sector, climate change mitigation is the primary relevant objective.
• Do No Significant Harm (DNSH) Compliance: Even if an activity contributes to one environmental objective, it must not cause significant harm to any of the other five. A data center operator reducing carbon emissions through renewable energy cannot simultaneously discharge harmful waste into local waterways or contribute to excessive water stress in drought-prone regions.
• Power Usage Effectiveness (PUE) Thresholds: Data centers must meet specific PUE ratios — 1.5 for new facilities and 1.8 for existing ones — with plans to improve over time. Companies must document and report these ratios using standardized measurement methodologies aligned with the European Green Deal data center sector agreements.
• Renewable Energy Sourcing: To qualify activities as Taxonomy-aligned, IT and telecom companies should demonstrate that energy used in their operations comes from renewable sources, either through direct procurement, Power Purchase Agreements (PPAs), or credible Renewable Energy Certificates (RECs) that correspond to actual hourly or at minimum annual energy consumption.
• Minimum Social Safeguards: The Taxonomy requires that all aligned activities comply with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, meaning companies must have robust policies addressing labor rights, anti-corruption, and fair taxation.
• Circular Economy Practices: IT companies manufacturing or deploying hardware — servers, networking equipment, smartphones — must demonstrate efforts toward extending product life cycles, designing for repairability, and implementing take-back schemes to minimize electronic waste in line with the DNSH criterion on circular economy transition.
• Disclosure of Taxonomy-Aligned KPIs: Large companies subject to the Corporate Sustainability Reporting Directive (CSRD) must disclose the proportion of their turnover, capital expenditure (CapEx), and operating expenditure (OpEx) that is Taxonomy-aligned, providing detailed explanations of how each eligible activity meets the technical screening criteria.

Implementation Steps for IT & Telecommunications Companies

1. Conduct a Taxonomy Eligibility Screening: Begin by mapping all revenue-generating activities and significant capital expenditure projects against the list of activities covered in the EU Taxonomy's Delegated Acts. For IT and telecom companies, relevant activities typically include the operation of data centers, development and deployment of ICT solutions that enable environmental improvements, and the provision of broadband and mobile network infrastructure. This screening determines which activities are eligible for Taxonomy assessment, even before determining full alignment.
2. Gather Technical and Environmental Data: Once eligible activities are identified, collect the detailed operational data needed to assess compliance with the technical screening criteria. For data centers, this means measuring actual PUE ratios, documenting energy sources, calculating water usage effectiveness (WUE), and recording the percentage of renewable energy in the energy mix. For telecom network operators, this involves energy consumption per unit of data traffic and lifecycle assessments of deployed hardware.
3. Assess DNSH Compliance Across All Six Objectives: For each eligible activity, conduct a structured assessment to confirm it does not significantly harm any of the five environmental objectives it is not primarily contributing to. This typically involves a qualitative and quantitative review of the activity's impacts on climate adaptation risk, water resources, waste generation, emissions to air and water, and biodiversity. Many companies engage environmental consultants with sector-specific expertise to conduct this assessment rigorously.
4. Verify Minimum Social Safeguards: Review existing human rights and labor policies, supplier codes of conduct, and tax transparency practices to confirm they align with the OECD and UN frameworks referenced in the Taxonomy Regulation. If gaps are identified — such as an absence of a formal human rights due diligence process — these must be addressed before the relevant activities can be reported as fully aligned.
5. Calculate and Validate Taxonomy KPIs: Using verified data, calculate the share of Taxonomy-aligned and Taxonomy-eligible turnover, CapEx, and OpEx. Establish clear internal definitions for cost allocation methodologies to ensure consistency across reporting periods. Many companies implement dedicated ESG data management platforms — such as Greenomy, Workiva, or custom ERP-integrated modules — to automate data collection and reduce reporting errors.
6. Integrate Taxonomy Disclosures into CSRD Reporting: Embed the Taxonomy KPI disclosures within the company's sustainability statement as required under the CSRD framework. Ensure that the disclosures are accompanied by clear explanations of assessment methodologies, limitations, and any activities that are eligible but not yet fully aligned, along with a transition roadmap explaining how alignment will be achieved over time.
7. Implement a Continuous Improvement Plan: The EU Taxonomy is not a one-time compliance exercise. Technical screening criteria are subject to revision, and new activities are periodically added through delegated acts. Establish an internal working group — typically involving sustainability, finance, legal, and technology teams — to monitor regulatory updates, track PUE and renewable energy progress against targets, and integrate Taxonomy considerations into future capital investment decisions and procurement processes.

Frequently Asked Questions

Does the EU Taxonomy apply to all IT and telecom companies operating in Europe?
Not all companies are subject to mandatory Taxonomy disclosure requirements at the same time. Currently, the obligation falls primarily on large public-interest entities with more than 500 employees that are already subject to the Non-Financial Reporting Directive (NFRD), and is progressively expanding under the Corporate Sustainability Reporting Directive (CSRD) to cover large companies with more than 250 employees or 40 million euros in turnover. Smaller IT and telecom companies are not yet legally required to disclose Taxonomy alignment, but many do so voluntarily to attract ESG-focused investors and meet the due diligence requirements of larger partners in their supply chains.

What qualifies as a Taxonomy-enabling activity for an IT company?
An enabling activity is one that directly enables other activities to make a substantial contribution to an environmental objective, even if the enabling activity itself does not directly deliver the environmental benefit. For IT companies, examples include software platforms that optimize energy consumption in manufacturing plants, predictive analytics tools that reduce food waste in the supply chain, fleet management systems that lower transport emissions, and building energy management systems that achieve measurable reductions in heating and cooling energy use. To classify revenue from such products as Taxonomy-eligible, companies must be able to demonstrate — ideally with quantitative evidence — that the solution actually enables the environmental improvement and that this is the primary purpose of the product.

How should a cloud provider approach Taxonomy alignment for its data center operations?
Cloud providers should start by calculating the PUE of each data center facility. New data centers must achieve a PUE at or below 1.5, while existing ones must be at or below 1.8 and have a documented improvement plan. Beyond PUE, the provider must demonstrate that the facility sources a significant portion of its energy from renewable sources — either on-site generation or through PPAs and certificates — and must assess water usage to confirm it does not cause significant harm to water resources in the facility's region. Reporting should be done at the facility level where possible, aggregated to the portfolio level for disclosure purposes, and supported by third-party verification to ensure credibility with investors and regulators.

Can a telecom operator classify 5G network investments as Taxonomy-aligned capital expenditure?
5G network investments can potentially qualify as Taxonomy-aligned CapEx if the operator can demonstrate that the new network infrastructure achieves a meaningful improvement in energy efficiency compared to the legacy infrastructure it replaces, and that it supports the enablement of environmental improvements across other sectors — for example, by supporting smart grid applications, precision agriculture, or connected autonomous vehicles that reduce emissions. The assessment requires detailed energy consumption data comparing 5G versus 4G performance on a per-unit-of-data basis, documentation of the enabling applications served by the network, and confirmation that the deployment does not cause significant harm, particularly regarding electromagnetic radiation safety compliance and land use impacts on ecosystems.

Summary

The EU Taxonomy represents a significant but manageable compliance challenge for IT and telecommunications companies, and those that act proactively stand to gain a measurable competitive advantage in accessing green capital, building investor confidence, and positioning themselves as credible partners in the broader European green transition. The technical screening criteria are specific and demanding, but they are achievable with the right combination of operational data management, cross-functional governance, and a genuine commitment to reducing the environmental footprint of digital infrastructure. Companies in this sector should begin their Taxonomy readiness assessment now — the regulatory scope is expanding, and early movers will benefit from the time needed to close data gaps, verify compliance, and embed Taxonomy thinking into long-term capital planning before mandatory deadlines arrive.