Agreement Reached on EU Taxonomy Rules for Sustainable Finance

06-01-2020

 

Background

The Taxonomy Regulation, agreed on 16 December, represents a general framework for the progressive development of a common EU classification system, a taxonomy, for environmentally sustainable investments.

Although this will not yet be an exhaustive list of environmentally sustainable economic activities, the proposed regulation defines a general framework for which economic activities can qualify as “environmentally sustainable”.

The classification tool will be progressively developed through a series of delegated acts, defining “technical screening criteria” for environmentally sustainable investment activities. By the end of 2020, an initial set of criteria will be developed, relating specifically to climate mitigation and adaptation. Additional criteria relating to other environmental objectives will be defined by the end of 2021.

Objectives

The proposed Regulation aims to reduce market fragmentation and "greenwashing". The classification’s system’s overarching ambition is to drive capital towards more sustainable investments.

This, in turn will help the EU to move closer to meeting its international commitments, namely the Sustainable Development Goals (SDGs) and the Paris Agreement.

The classification system is to be regarded as an element of a wider package of measures launched by the European Commission in March 2018 on financing sustainable growth.

Who is impacted by the proposed new rules

  • EU or Member States when establishing requirements about financial products or corporate bonds that are marketed as environmentally sustainable;
  • Institutional investors and asset managers offering financial products as environmentally sustainable investments;
  • Financial and non-financial companies in the scope of the Non-Financial Reporting Directive obliged to disclose information on their environmentally sustainable activities.

Criteria for being recognised as environmentally sustainable

The proposed Regulation sets out four criteria for an investment to be classified as environmentally sustainable. These are detailed below:

  1. The investment must contribute to one or more of the environmental objectives outlined in the Proposed Taxonomy Regulation. These include the following:
  • Climate change mitigation
  • Climate change adaptation
  • Sustainable use and protection of water and marine resources
  • Transition to a circular economy
  • Pollution prevention and control
  • Protection and restoration of biodiversity and ecosystems

 

  1. It must do no significant harm (DNSH) to any of the other listed environmental objectives

 

  1. It must be carried out in compliance with minimum social safeguards (ie aligned with the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights. This includes the principles and rights set out in the eight fundamental conventions identified in the International Labour Organisation’s declaration on Fundamental Rights and Principles at Work and the International Bill of Human Rights.

 

  1. It must comply with specific technical screening criteria.

Next steps

Following the endorsement by EU ambassadors on 18 December, the new rules will have to be formally adopted by the Council and the Parliament. Following these votes, the Regulation is set to enter into force 20 days after its publication in the Official Journal of the European Union. For any questions regarding the new rules, please contact Valentina Bolognesi, Social & Environmental Policy Advisor.  

A Trending Topic for the Sustainability Industry 

Sustainable finance is one of the focal points for innovation across our industry.  The introduction of the EU taxonomy Regulation detailed here foreshadowed Larry Fink (Chairperson of Blackrock Investment Bank)'s 2020 Letter to CEOs, an address that places great importance on sustainably financing business. In order to offer members with key insights onto where the industry is moving, amfori will publish a research paper on sustainable Finance: Awakening of the investment sector amind the climate crisis. This study will form part of a research series. Watch this space!

 

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