What the EU is doing to create an EU-wide classification system for sustainable activities.
Why do we need an EU taxonomy?
In order to meet the EU’s climate and energy targets for 2030 and reach the objectives of the European green deal it is vital that we direct investments toward sustainable projects and activities. The current COVID-19 pandemic has reinforced the need to redirect money toward sustainable projects in order to make our economies, businesses, and societies – in particular health systems, more resilient against climate and environmental shocks.
To achieve this, a common language and a clear definition of what is ‘sustainable’ is needed. This is why the action plan on financing sustainable growth called for the creation of a common classification system for sustainable economic activities, or an “EU taxonomy”.
What is the EU taxonomy?
The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It could play an important role helping the EU scale up sustainable investment and implement the European green deal. The EU taxonomy would provide companies, investors, and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. In this way, it should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.
Taxonomy Regulation and delegated acts
The Taxonomy Regulation was published in the Official Journal of the European Union on 22 June 2020 and entered into force on 12 July 2020. It establishes the basis for the EU taxonomy by setting out 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable.
The Taxonomy Regulation establishes six environmental objectives
Climate change mitigation
Climate change adaptation
The sustainable use and protection of water and marine resources
The transition to a circular economy
Pollution prevention and control
The protection and restoration of biodiversity and ecosystems
Different means can be required for an activity to make a substantial contribution to each objective.
Under the Taxonomy Regulation, the Commission had to come up with the actual list of environmentally sustainable activities by defining technical screening criteria for each environmental objective through delegated acts.
A first delegated act on sustainable activities for climate change adaptation and mitigation objectives as published in the Official Journal on 9 December 2021 and is applicable since January 2022. A second delegated act for the remaining objectives will be published in 2022.
The publication of the first delegated act was accompanied by the adoption of a Commission Communication on ‘EU taxonomy, corporate sustainability reporting, sustainability preferences and fiduciary duties: Directing finance towards the European green deal that aimed at delivering key messages on how the sustainable finance toolbox facilitates access to finance for the transition. This Communication builds on the transition finance report adopted by the Platform on Sustainable Finance in March 2021.
A Delegated Act supplementing Article 8 of the Taxonomy Regulation was published in the Official Journal on 10 December 2021 and is applicable since January 2022. This delegated act specifies the content, methodology, and presentation of information to be disclosed by financial and non-financial undertakings concerning the proportion of environmentally sustainable economic activities in their business, investments or lending activities.
On 9 March 2022, the Commission adopted a Complementary Climate Delegated Act including, under strict conditions, specific nuclear and gas energy activities in the list of economic activities covered by the EU taxonomy. It was published in the Official Journal on 15 July 2022 and will apply as of January 2023. The criteria for the specific gas and nuclear activities are in line with EU climate and environmental objectives and will help accelerate the shift from solid or liquid fossil fuels, including coal, towards a climate-neutral future. The complementary delegated act builds on the Commission Communication referred to above and on the assessment of nuclear energy mentioned below. Source: https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en#why
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