EU Taxonomy for Sustainable Activities
Introduction
The EU Taxonomy for Sustainable Activities is a classification system established by the European Union (EU) to provide a clear framework for identifying environmentally sustainable economic activities. This taxonomy is a key component of the EU's action plan on financing sustainable growth, aiming to channel investments into sustainable activities and contribute to a more sustainable economy.
Background and Rationale
The EU Taxonomy was developed in response to the need for a common language and clear criteria for determining what can be considered an environmentally sustainable economic activity. Prior to its establishment, there was a lack of clarity and consistency in the market regarding what constitutes a sustainable investment, leading to potential greenwashing and hindering the transition to a sustainable economy.
Development and Implementation
The development of the EU Taxonomy involved extensive technical input from a group of experts known as the Technical Expert Group (TEG) on sustainable finance. The TEG developed technical screening criteria for determining whether an economic activity is environmentally sustainable. The EU Taxonomy Regulation, which provides the legal basis for the EU Taxonomy, was adopted by the EU in June 2020.
Key Principles
The EU Taxonomy sets out six environmental objectives that an economic activity must contribute to in order to be considered sustainable. These are: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems.
Criteria for Sustainable Activities
For an economic activity to be considered sustainable under the EU Taxonomy, it must meet several criteria. It must contribute substantially to one or more of the six environmental objectives, do no significant harm (DNSH) to any of the other environmental objectives, meet minimum social safeguards, and comply with technical screening criteria.
Impact and Challenges
The EU Taxonomy has the potential to significantly influence investment flows towards sustainable activities. However, its implementation also presents challenges, including the need for companies to adapt to new disclosure requirements and the complexity of the technical screening criteria.
Conclusion
The EU Taxonomy for Sustainable Activities represents a significant step forward in the EU's efforts to promote sustainable finance and transition to a sustainable economy. By providing a clear and consistent framework for identifying sustainable activities, it aims to facilitate the flow of investments towards these activities and contribute to the achievement of the EU's environmental objectives.