EU Taxonomy DNSH Criteria: A Practical Assessment Guide

Where DNSH Sits in the Taxonomy Test

The EU Taxonomy Regulation ((EU) 2020/852) requires four conditions to hold simultaneously before an economic activity can be called "environmentally sustainable" (European Commission, 2020):

1. Substantial contribution to at least one of the six environmental objectives
2. Does No Significant Harm (DNSH) to any of the remaining five
3. Compliance with minimum social safeguards (Article 18) — OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights
4. Compliance with the applicable Technical Screening Criteria (TSC)

Of the four, reporting entities most often fail DNSH. Substantial contribution is usually well-defined — solar PV electricity generation, for example, qualifies by definition — but DNSH typically cross-references multiple EU directives, national law, and new methodological steps such as physical climate risk assessment. The gap between taxonomy eligibility and taxonomy alignment is, in large part, the DNSH gap.

Five Generic Appendices + Activity-Specific DNSH

The Climate Delegated Act ((EU) 2021/2139) establishes a two-layer DNSH architecture (European Commission, 2021):

Generic DNSH appendices (apply to every activity):

Activity-specific DNSH: Below the substantial-contribution criteria, each activity's TSC card carries "Do no significant harm to..." sections. These complement the generic appendices; cement production, for example, adds specific kiln-stack emission limits beyond Appendix C.

The two-layer structure means DNSH must be produced per activity. There is no single company-level DNSH answer — every candidate taxonomy-eligible activity needs its own DNSH evidence file.

Step-by-Step DNSH Assessment

Step 1: Open the activity's TSC card. Do not start a DNSH assessment without first reading the full text of the relevant activity (e.g. 3.7 Cement manufacturing, 7.1 New building construction, 4.5 Hydropower) in the Climate Delegated Act. The activity-specific DNSH section references the generic appendices but also adds additional limits.

Step 2: Physical climate risk assessment (Appendix A). This is the most common gap in taxonomy submissions. The required documentation is a climate risk screening + adaptation evaluation covering:

• The site's exposure to hazards (acute: floods, storms, wildfires; chronic: sea-level rise, temperature increase, drought)
• Analysis under at least two climate scenarios (typically SSP1-2.6 and SSP5-8.5, or equivalent RCPs)
• Projections aligned to the activity's expected operating life (usually 20–30 years)
• Documentation of concrete adaptation solutions where material risks are identified

The Climate Delegated Act accepts IPCC AR6 or equivalent-quality climate data sources. A historical-only screening is not sufficient. In practice, the Commission's Climate-ADAPT portal, the EU Copernicus Climate Data Store, and the Turkish Meteorological Service projection datasets (for Türkiye-based sites) are accepted reference sources. The required output: a hazard × exposure × vulnerability matrix, a list of material risks identified, and an action plan that names the adaptation solution applied for each.

DNSH requires adaptation solutions to be implemented — "planned" is not acceptable. If CapEx planning is not tied to a concrete budget line in the reporting year, the activity is not aligned for that year.

Step 3: Water DNSH (Appendix B). Active water permits, compliance with discharge limits, and evidence that the activity does not threaten the "good status" objective under the Water Framework Directive (2000/60/EC). For production facilities, the water allocation document, invoices, and laboratory analyses are the standard evidence.

Step 4: Pollution and chemicals (Appendix C). Screening against REACH (EC 1907/2006) Annex XIV/XVII lists, CLP (EC 1272/2008) classification, and POP Regulation ((EU) 2019/1021) compliance. The chemical inventory must be maintained, with manufacturer certificates accessible.

Step 5: Biodiversity (Appendix D). Environmental Impact Assessment (EIA) must be completed for the site, and a check confirming non-presence in Natura 2000, IUCN protected areas, or national conservation zones must be documented. EIA exemption under national law is not accepted as DNSH compliance for new construction.

Step 6: Confirm activity-specific criteria. Every DNSH row on the activity's TSC card must be ticked with evidence references. A single missing DNSH row breaks alignment for the entire activity.

Common Mistakes

Mistake 1 — Confusing "eligible" with "aligned": Listing in the Taxonomy makes an activity eligible, not aligned. Eligibility is whether the activity type is listed; alignment requires all four conditions (substantial contribution + DNSH + minimum safeguards + TSC). To report CapEx/turnover KPIs as aligned rather than eligible, the DNSH assessment must be in place (European Commission, 2021, Disclosures Delegated Act 2021/2178).

Mistake 2 — Skipping or under-scoping physical climate risk assessment: Qualitative observations like "the site is near the coast so it is exposed to sea-level rise" are not acceptable. The Appendix A bar is a minimum two-scenario, minimum 20-year projection, life-of-asset analysis.

Mistake 3 — A single corporate DNSH answer: "Is our company Taxonomy-aligned?" cannot be answered at company level. Every candidate activity (defined at NACE-code level) needs its own DNSH file.

Mistake 4 — Separating generic appendices from activity-specific DNSH: The activity-specific TSC card always references the generic appendices but also adds extra limits. Screening only the generic appendices and skipping the activity-specific DNSH section is one of the most common omissions.

Mistake 5 — Missing evidence files for third-party verification: Taxonomy-aligned turnover, CapEx, and OpEx reported under ESRS E1 and the Article 8 Disclosures Delegated Act sit inside the assurance perimeter. DNSH evidence files (climate risk assessment, EIA, REACH screening, water permits) must be centrally accessible.

Timeline and Transitions

• Article 8 KPI reporting: Mandatory for turnover/CapEx/OpEx from reporting year 2022 (climate objectives); mandatory from 2023 for the other four environmental objectives (European Commission, 2020).
• Omnibus Simplification Package (2026): Simplification of Article 8 reporting scope and format is in progress; a draft Commission Notice (FAQ) was released in December 2025 (European Commission, 2025). The KPI calculation methodology backbone is unchanged, but optional reporting for smaller undertakings has been added.
• TSC revision (Delegated Regulation (EU) 2023/2485): Cement, iron-steel, hydrogen, and several building criteria were updated by the revision adopted on 27 June 2023, applicable from 2024. DNSH appendix limits changed in that revision — assessments produced under the older TSC need to be reviewed.
• Türkiye Green Taxonomy: Article 8 of Climate Law 7552 provides for the establishment of a Türkiye Green Taxonomy; secondary legislation is still in preparation. Structural similarity to the EU Taxonomy (substantial contribution + DNSH approach) is expected, but Türkiye-specific TSCs may diverge through references to national legislation. EU-exporting Turkish companies that build EU DNSH filing capability today reduce parallel-reporting effort when downstream taxonomy-alignment requests arrive from customers.

Action Checklist

• Build an inventory of every taxonomy-eligible NACE-coded activity inside the company
• Open a separate DNSH evidence file per candidate activity — generic Appendix A–E + activity-specific DNSH sections as distinct checklists
• Complete the physical climate risk assessment with two scenarios and at least a 20-year projection at site level
• Refresh the REACH/CLP/POP screening annually against the chemical inventory
• Archive EIA documents and Natura 2000 query results per activity
• Report Article 8 KPIs with the eligible/aligned distinction made explicit — the verifier can request DNSH evidence files row by row
• Stand up a regulatory tracking mechanism for TSC revisions (2023/2485) and Omnibus updates

To discuss how activity-level DNSH evidence packs are structured, request a demo from Azalt.