EU Taxonomy for Sustainable Finance (EU Regulation 2020/852)

EU Taxonomy for Sustainable Finance (EU Regulation 2020/852)

Organization

Technical Expert Group (TEG) on Sustainable Finance/EC

Type(s) of Tool

Sustainability Benchmarks, Economic / Financial Valuations

Sector(s)

Tools applicable to all sectors

Lifecycle Phase(s)

Strategic Planning, Prioritization, Finance

Open Source

Yes

Language Availability

English

Country of Origin

Belgium

Date of Development

2020

Version

1.0

Description

The EU Taxonomy sets out the overarching conditions that an economic activity has to meet to qualify as sustainable. In order to ensure that investments and financial market activities support those sustainable economic activities, financial market participants active in the EU and companies subject to non-financial disclosure requirements must now incorporate disclosures with reference to the Taxonomy. This way, the Taxonomy aims to help channel capital flows toward sustainable investments in a harmonized and consistent manner across the EU single market, thereby supporting the EU Green Deal and the Paris Agreement, and guide the transition of companies toward sustainable economic activities.

Tool Outcome

Financial market participants offering financial products in the EU must now incorporate disclosures with reference to the Taxonomy (disclosure requirements depend on product categories set out in the Regulation on Sustainability-Related Disclosures in the Financial Services Sector). Companies subject to disclosure requirements under the Non-Financial Reporting Directive (NFRD) must make disclosures with reference to the Taxonomy.

By providing appropriate definitions to companies, investors and policymakers, the Taxonomy is expected to create security for investors, protect private investors from greenwashing, help companies to plan the transition, mitigate market fragmentation and eventually help shift investments where they are most needed.

Sustainability Criteria

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

In order to qualify as sustainable, economic activities must:
– Substantially contribute to at least one of the six environmental objectives as defined in the Regulation
– Do no significant harm to any of the other five environmental objectives as defined in the proposed Regulation
– Comply with minimum safeguards

Different means can be required for an activity to make a substantial contribution to each objective.