With the EU Taxonomy regulation evolving through its implementation phases, financial institutions, corporations, and asset managers must stay on top of the latest regulation updates while maintaining audit-ready documentation. And this represents a task that is becoming increasingly complicated.
Even the “Omnibus” packages, unveiled in February 2025 by the European Commission, which include a set of proposals aiming to simplify sustainability rules and boost the competitiveness of European businesses, are creating more uncertainties for compliance professionals. Hence, implementing the EU Taxonomy requires not only regulatory expertise but also advanced technological capabilities.
This article examines eight key features that one of the best EU Taxonomy software should have.
1. Versatile Assessment Capabilities for Diverse Client Needs
The most effective EU Taxonomy software accommodates various organizational structures and compliance requirements through:
- Single project assessments for specific financing instruments (loans, mortgages, green bonds) addressing the needs of banks and other financial institutions
- Multi-project structured assessments with portfolio-level aggregation capabilities addressing the needs of banks and other financial institutions
- Corporate assessments with Article 8 Report
Each assessment type must follow distinct computational workflows and assessment methodologies considering the specific KPIs required by the EU Taxonomy depending on the client type, and the specific internal client needs on how the assessment is integrated into the compliance activity. This versatility ensures for instance financial institutions to tailor their compliance approach based on their business model by evaluating individual assets or conducting enterprise-wide taxonomy alignment analysis.
Whereas many solutions in the European market offer only the corporate assessment, the AI solution for the EU Taxonomy of Dydon AI (TAXO TOOL) has been specifically designed to cover the needs of financial institutions, together with the Association of German Public Banks (VÖB) and its subsidiary VÖB-Service.
2. Comprehensive Coverage of All Economic Activities and Technical Screening Criteria
An ideal EU Taxonomy software should have a continuously updated and complete workflow encompassing:
- Full implementation of all the economic activities across all six environmental objectives of the EU Taxonomy (climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems) – as of now approx. 150 over all 6 environmental objectives.
- Display the corresponding NACE code for each economic activity of the EU Taxonomy, enabling users to quickly identify the relevant codes.
- Assisted process to collect all data necessary to establish or calculate the required Technical Screening Criteria (TSC), in order to define if the thresholds for quantitative requirements are fulfilled or not (e.g., emissions levels, energy efficiency metrics, water consumption parameters).
Dydon AI’s TAXO TOOL addresses this challenge through a sophisticated digitisation of the EU Taxonomy regulation and provides the computational tools to accurately answer the technical screening criteria. This approach ensures that even when organisations or individuals lack relevant data, the system can still provide step-by-step assistance in calculating the quantitative thresholds.
3. AI-Powered Automation for Enhanced Efficiency
With the increasing complexity of sustainability reporting frameworks such as the EU Taxonomy, the use of AI is no longer optional, but essential – it enables the automation of certain time-consuming activities, while providing a high level of data accuracy that would be almost impossible to achieve through manual processes alone.
The best EU Taxonomy software leverages advanced AI to streamline the assessment process, by:
- Extracting key data from uploaded documents with high accuracy
- Automatically answering standard assessment questions based on document content
These AI capabilities must be specifically trained on EU Taxonomy documentation, technical standards, and sector terminology to ensure accurate interpretation of complex regulatory requirements. The system should maintain explicit delineation between AI-derived and human-validated data points, ensuring results are transparent and auditable. By automating routine data extraction and analysis tasks, sustainability and compliance teams can focus on strategic decision-making rather than reading out technical documentation.
4. Geological & Climate Risk Integration for DNSH Assessment
To enhance the “Do No Significant Harm” (DNSH) assessment, the EU Taxonomy software should have:
- Integration with specialized climate risk data sources
- Geological hazard assessment capabilities for comprehensive risk evaluation
- Location-specific analysis of physical climate risks
- Climate scenario analysis and the ability to translate physical risk data into compliance parameters
Dydon AI’s TAXO TOOL has achieved significant advancements in this area through integration with comprehensive risk databases such as Munich Re’s. This integration enables location-specific climate and geological risk assessments where users need only input a project’s address to receive detailed analyses covering multiple environmental factors, significantly simplifying the DNSH assessment process.
This integration is particularly valuable for ensuring consistent evaluation of climate adaptation and risk mitigation measures across diverse asset types and geographical locations.
5. User-Friendly Interface Designed for Multiple Stakeholders
An effective EU Taxonomy software must balance technical complexity with usability.
The user interface should be designed to support sustainability professionals who may not have specialized technical expertise in all areas of the regulation. By implementing progressive disclosure principles and contextual help features, the system can guide users through the assessment process without overwhelming them with unnecessary complexity.
6. Transparent Workflows Ensuring Process Clarity
Sustainability reporting, such as EU Taxonomy alignment, demands not only accurate data but also transparency in the software generating these reports, ensuring that AI-driven insights remain explainable, auditable, and trustworthy for regulatory compliance and decision-making.
For this reason, a valuable EU Taxonomy software should provide this transparency through:
- Visual workflow representations showing assessment progression
- Clear step-by-step guidance through complex regulatory requirements
- Explicit documentation of information sources and calculation methodologies
This transparency is essential not only for operational efficiency but also for regulatory compliance and audit preparedness. Users should clearly understand their position in the assessment process, what information is needed at each stage, and how the system determines compliance.
This is a unique feature that Dydon AI has been striving for since its inception, thanks to its explainable AI platform and vision of how artificial intelligence should be applied, offering the ability to trace back what and where a decision was made.
7. Audit-Ready EU Taxonomy Report
The ultimate output of any EU Taxonomy assessment must cope with regulatory scrutiny through:
- Comprehensive PDF reports capturing the complete assessment process
- Transparent documentation of all responses and supporting evidence
- Clear identification of AI-generated content versus manually entered data
- Audit trails for all assessment activities and full traceability from final results back to source documents
- Article 8 report in Excel format for corporate EU Taxonomy reporting
These audit-ready reports eliminate the need for additional documentation preparation, ensuring that organizations can confidently submit their EU Taxonomy assessments for external verification or regulatory review.
8. Enterprise-Grade Security and Technical Scalability
As EU Taxonomy assessments often involve sensitive business information, the best software solutions should include:
- Robust data encryption
- Granular access controls based on user roles and responsibilities
- Private, secure AI infrastructure that keeps sensitive data within organizational boundaries
- Regular security audits and vulnerability assessments
Additionally, the best solutions offer scalability through:
- API connectivity for integration with existing systems
- Automated workflows that maximize efficiency as volume increases
- Cloud-based deployment, enabling flexible resource allocation
This combination of security and scalability guarantees that the solution can expand with organizational needs while maintaining the highest standards of data protection. For banks and financial institutions, the stakes couldn’t be higher. As sustainability reporting influences capital allocation decisions, the security of these systems becomes a matter of market integrity. A data breach can undermine stakeholder trust, trigger regulatory scrutiny, and compromise competitive intelligence.
Selecting the Best EU Taxonomy Software
By prioritizing these eight essential features, businesses can identify solutions that will enhance their sustainability reporting efficiency while delivering the comprehensive, accurate assessments required by regulators.
Solutions like Dydon AI’s TAXO TOOL demonstrate that when properly implemented, AI-powered EU Taxonomy software can effectively transform complex technical and compliance hurdles into an intuitive system that enables AI-assisted, reliable assessments. This empowers organizations to navigate the evolving regulatory landscape with confidence.
