06-04-2022 11:16

Platform on Sustainable Finance: Reports pave way for a broader EU Taxonomy

The EU Platform on Sustainable Finance has released two long-awaited Taxonomy reports: Technical Screening Criteria for the remaining four environmental objectives and the Extended Environmental Taxonomy. During the year, the European Commission will deliberate over how it will use the proposals.
Man with young girl pointing at windmills

The Platform on Sustainable Finance (PSF) is an expert group mandated by the European Commission to assist in developing the EU Taxonomy, a comprehensive classification system for green activities. In the latest tranche of publications, the Platform launched Taxonomy criteria for the remaining four environmental objectives and an Extended Environmental Taxonomy, defining transitional activities and encouraging the move from negative to positive contribution. Like the Social Taxonomy Report, the publications followed an 18-month development period that included consultation with scientists, experts and the wider public.

Technical Screening Criteria for the remaining four environmental objectives

While the criteria for the first two environmental objectives regarding climate change were adopted during 2021 and entered into force in the beginning of 2022, criteria for the remaining four objectives have remained outstanding. The new publication on the Technical Screening Criteria for the remaining four environmental objectives is divided into two parts: a methodological report outlining the scope of activities included and why they were chosen, as well as EU and international standards underlying the Technical Screening Criteria, and an Annex listing the Technical Screening Criteria, along selected high-impact activities.

Due to resource and time constraints, the Platform highlights that the document is not exhaustive and only considers 20 activities per environmental objective.

The EU's 6 environmental objectives

The EU Taxonomy's 6 environmental objectives

1) Climate change mitigation

2) Climate change adaptation

3) The sustainable use and protection of water and marine resources

4) The transition to a circular economy

5) Pollution prevention and control

6) The protection and restoration of biodiversity and ecosystems

The Extended Environmental Taxonomy

The Extended Environmental Taxonomy, also known as the Transition Taxonomy, is the Platform’s suggestion for including non-sustainable and transition activities in the Taxonomy. In line with previously published reports, the Platform advocates for a three step classification:

Green

The most sustainable activities, making a substantial contribution to at least one environmental objective.

Amber

Transition activities which do not meet substantial contribution criteria but also do not create Significant Harm

Red

Non-sustainable (significantly harmful) activities

A key characteristic of the extended taxonomy is that some activities can move between levels, with the aim of incentivizing non-green activities and entities to transition towards greener activities. In simplified terms, the Platform proposes three different scenarios across the entire economy:

  • An activity is significantly harmful:

Urgent exit from the activity is needed; the activity cannot move to a different level.

  • An activity is classified as significantly harmful or intermediary, but there is a possibility to transition the activity to a more sustainable level:

The activity should transition to a different level as soon as possible.

  • An activity does not have a significant environmental impact:

The activity is not covered by the Taxonomy, but can “green” itself through green expenditure.

Next steps

The Platform’s publications do not represent legal guidance or the opinion of the European Commission and will be subject to a consultation period and regulatory approval by the European Parliament later this year.

The report on the remaining four objectives is expected to take priority. Decisions could potentially be made during 2022, allowing new regulation to come into force in 2023. As previously, companies will only have to report on Taxonomy eligibility the first year after approval, and can wait to report on Taxonomy alignment until the second year.

Authors

Name:
Lea Gamsjäger
Title:
Nordea Sustainable Finance Advisory
Name:
David Ray
Title:
Nordea Sustainable Finance Advisory

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