EU’s sustainable finance platform pushes for larger Taxonomy scope
On 18 January this year, the European Commission had posed six questions to the European Platform for Sustainable Finance, a group of advisers, on transition finance. The most pertinent one: how technologies and industries that are not green might still contribute to a green transition to meet EU’s climate goals? This came after the Commission's proposals came under fire from governments of certain member states, who demanded that gas power plants be included in transition activity.
“Taxonomy is already a reference for transition. It can be developed further,” said Nathan Fabian, chair of the European Platform for Sustainable Finance, which recommended the Commission to communicate more about how the taxonomy already supports transition finance.
Fabian also underlined the need for other tools in this exhaustive undertaking. These include financial product labelling, such as explaining the link between the upcoming EU Green Bond Standard (EU GBS) and the Taxonomy and how companies can voluntarily disclose the level of compliance of their green bonds with the Taxonomy. Other recommendations include establishing activity-specific transition pathways based on Taxonomy criteria and utilisation of metrics and tools outside the Taxonomy, including the Climate Transition Benchmark, TCFD metrics or science-based targets, among others. Taxonomy-reporting is mandatory for financial products that claim to either have an environmental objective or environmental characteristics, which would tackle greenwashing concerns in the market.
The recommendations also include ensuring that reporting requirements enable companies, financiers and investors to communicate their transitions. It also emphasizes that disclosure of Taxonomy-aligned CapEx is given equal importance as disclosure of taxonomy-aligned turnover.
The Platform also highlighted the need to include more enabling activities in the Taxonomy across different sectors focussing on energy efficiency that can be performed by any company (through CapEx), starting with manufacturing, agriculture and forestry. “The Taxonomy should include more enabling activities that recognise the contribution of the entire supply chain around taxonomy-aligned activities by financing, distributing, and selling of taxonomy-aligned products or services or by providing critical materials to taxonomy-aligned activities,” added the report. It also called for an update of the Climate Delegated Act to ensure such activities have consistent descriptions and are recognised consistently across different sectors.
The Platform also proposed extending the current taxonomy framework by developing criteria for activities with no significant impact on the Taxonomy and those that cause significant harm. “The Platform is exploring the possibility to support significant improvements in performance of activities towards (but not reaching) the substantial contribution criteria,” said the report. It should also include activities that enable companies to stop performing significantly harmful activities.
The Commission will consider this advice while finalising the draft delegated act on climate mitigation and climate adaptation, in the context of the Taxonomy Regulation and while preparing its Renewed Sustainable Finance Strategy. The Commission added that it would continue its work towards creating a common language that investors can use everywhere when investing in projects and economic activities that have a substantial positive impact on the climate and the environment.