The EU Taxonomy classifies an economic activity as "environmentally sustainable" through a three-part test. First, the activity must substantially contribute to at least one of six environmental objectives — here, climate change mitigation — by beating a numeric technical screening threshold (e.g. grams of CO₂ per kWh generated). Second, it must Do No Significant Harm (DNSH) to any of the other five objectives: each is scored 0–100% and must clear a pass floor, or the whole activity fails regardless of how green its headline number is. Third, it must meet minimum social safeguards (OECD/UN guidelines on labour and human rights).
aligned = (carbonIntensity ≤ threshold)
AND (∀ objective: DNSH_score(objective) ≥ floor)
AND safeguardsMet
- Carbon intensity vs threshold — the substantial-contribution test. Lower intensity than the threshold clears bar #1; the bar itself moves as regulators tighten screening criteria over time.
- DNSH sliders — four of the five "no significant harm" objectives (water, circular economy, pollution, biodiversity). Drop any one below the floor and the shell collapses on that axis, turning the whole activity non-aligned even with excellent carbon numbers.
- DNSH pass floor — the minimum acceptable score regulators set per objective; raising it is a stricter taxonomy revision.
- Social safeguards toggle — a binary gate independent of the numeric criteria; failing it fails the whole classification.
Real-world relevance: this all-or-nothing, multi-criteria gate is why a single weak DNSH score can disqualify an otherwise low-carbon investment from "green" labelling — and why taxonomy alignment percentages reported by funds are usually much lower than their carbon-intensity numbers alone would suggest.