The EU Taxonomy

The EU Taxonomy

„It’s the first serious effort by regulators to regulate a disclosure requirement not against a financial measure or a financial risk measure, but against a sustainability target.”

Will Martindale, Director, Policy & Research, PRI

The Six Environmental Objectives

  1. Climate change mitigation
  2. Sustainable use and protection of water and marine resources
  3. Pollution prevention and control
  4. Climate change adaptation
  5. Transition to a circular economy
  6. Protection and restoration of biodiversity and ecosystems

2020: A Momentous Year For Climate Action

Sustainable finance. After an initial proposal for a regulation to promote green investments introduced by the European Commission in May 2018, a political agreement with the European Parliament on the Taxonomy Regulation was finally reached in December 2019. The EU Taxonomy is a strategy aimed at governments, investors, and businesses in view of long-term sustainability. It is essentially a classification system listing a series of economic activities consistent with the EU’s goal for the achievement of a climate-neutral economy, namely net-zero carbon emissions by 2050.

This measure works towards the decarbonization of polluting sectors to ensure the achievement of the Net-Zero goal. The EU Taxonomy should prevent companies from adopting harmful business practices and it should also work as an incentive for sustainable investments.

The Purpose Behind The Regulatory Framework

Beyond defining what constitutes “green” business practice, recommendations and screening criteria aim to provide the above-mentioned target group with unambiguous guidelines. Yet ecological investments in one sector must not jeopardise activities in another. The guidelines should indeed prevent the adoption and perpetuation of harmful business practices and at the same time work as an incentive to invest sustainably.

Here you can find the Technical expert group on sustainable finance (TEG) – Taxonomy tools

“To be aligned with the EU Taxonomy, economic activity needs to make a substantial to one of six environmental objectives, and it needs to avoid significant harm to the other five. It also needs to meet minimum safeguards defined in line with the OECD guidelines on multinational enterprises and the UN guiding principles on business and human rights.”

Alyssa Heath, Head of EU & UK Policy, PRI

Benefits For All

Investors will be able to choose from a great array of “green” projects and products, whereas businesses will benefit from this measure as they will have access to new sources of funding.

The EU Taxonomy will be a classification system for economic activities that meet environmental objectives

Nathan Fabian, Chief Responsible Investment Officer, PRI

The Role Of The TEG

The Technical Expert Group (TEG) on sustainable finance was established in July 2019 as mouthpiece organization communicating on behalf of the European Commission. It has been responsible for developing “recommendations for technical screening criteria for economic activities that can make a substantial contribution to climate change mitigation or adaptation while avoiding significant harm to the four other environmental objectives.

The TEG final report and technical annexe on EU Taxonomy containing relevant information regarding the overall recommendation and implementation guidance was published in March 2020.

The final report on the EU taxonomy can be found here: TEG final report on the EU taxonomy

Are The EU-Promoted Climate Measures Effective At All? An Ongoing Controversy

In a 2019 interview with the DW News presenter Laila Harrak, Dr Tadzio Müller, advisor on climate justice and international politics for the Rosa Luxemburg Foundation, expressed his scepticism regarding the EU Green Deal. Here is a salient extract from the interview:

Laila Harrak: “The EU is planning to put its money where its mouth is: EU Green Deal, is it ambitious enough?”

Tadzio Müller: “No, not at all. It’s got three problems. First of all, it’s a set of targets and targets don’t reduce emissions. Secondly, it’s a growth strategy. And growth – capitalist growth created this problem. You can’t grow your way out of a problem that was caused by growth. And thirdly and last point: it’s a fairytale. It perpetuates the illusion that we can both maintain our high-growth, high speed, high production, high wealth lifestyle in the global north and still save the climate. We have to make a choice and the Green Deal does not make that choice.”

Laila Harrak: “They’re trying to do something; they’re trying to reduce their carbon footprint.”

Tadzio Müller: “No, they’re saying that they’re going to reduce their carbon footprint, and if targets reduce emissions, then the Paris Agreement which said we’re going to keep warming to 1.5 degrees would have already saved the world. Look, I live in Germany here, and Germany has for long portrayed itself as a climate leader, but it isn’t. It isn’t a world leader in renewable energies, it’s a world leader in burning soft-brown coal, which is the dirtiest of all fossil fuels. Europe isn’t a climate leader; its wealth is based on exporting lots of things like for example cars that destroy the climate. Really, the Green Deal seems to be more pretending to save the climate, while actually trying to save the economy.”

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