The EU Taxonomy in the international context of sustainability standards
The EU Taxonomy is the first joint, comprehensive and scientifically based assessment standard for green investments. However, the EU Taxonomy is not the only sustainability standard for classifying economic activities worldwide. Therefore, the question arises: How does the EU Taxonomy stand in international comparison with other sustainability taxonomies?
The EU Taxonomy measures the turnover and expenditure associated with an economic activity and thus assigns a sustainability score to the activities of companies. This enables investors to determine how environmentally responsible an investment in a company would be.
Two main objectives are stated in the EU taxonomy:
The six environmental goals
The classification of economic activities is based on a reference framework of double conditionality. This means that, on the one hand, a company's economic activities must make a significant contribution to one of the EU's six official environmental objectives (see figure), and on the other hand, they must not significantly compromise other environmental or social objectives.
The People's Bank of China published the so-called "Green Bond Catalogue" in 2015, which supports the issuance of green bonds and is referred to as the Chinese taxonomy. It contains official requirements for classifying projects as green, for managing revenues and reporting, and a taxonomy in the form of a Green Bond Endorsed Project Catalogue. Targeted at financial institutions, the Catalogue defines eligible green projects and provides guidance for project classification in the following six environmental areas:
In addition, China has established a "Green Industries Guide," which was last updated in 2019. For lending, the China Banking Regulatory Commission has issued guidelines for green loans, performance indicators and reporting forms.
"Fostering global ambition" is one of the key elements of the EU Sustainable Finance Strategy, published by the EU Commission in July 2021. Among other things, the EU intends to develop common goals and guidelines for sustainability taxonomies with other countries. In addition, the comparability and coherence of parameters and thresholds of different taxonomies are intended to be improved. The International Platform on Sustainable Finance (IPSF) is currently working on the so-called "Common Ground Taxonomy". This is a uniform ground taxonomy that compares similarities and differences between the EU taxonomy and the Chinese taxonomies. By January 14, 2022, the IPSF consulted a comprehensive comparison table with technical evaluation criteria on about 80 economic activities.
In addition to the EU and China, about 20 countries and regions have developed or begun to develop approaches to green, social, or transition taxonomies in recent years. However, most of these have not yet been translated into legislative initiatives.
These include, for example, the following countries:
Other countries that have expressed interest in taxonomies for sustainable finance include Canada, Chile, Colombia, Kazakhstan and the ASEAN region. A large number of them plan to use the EU taxonomy as a basis for developing their own taxonomies.
The EU Taxonomy, also called the Green Taxonomy, is a model for classification systems in many other countries because the EU Taxonomy is the first complete, legally binding benchmark for green investments. As a result, it is also considered the most advanced classification system. Furthermore, since many of the other global taxonomies are still in the development phase, many countries are using the EU benchmarks as a guide. Many of these countries have assessed the EU criteria and are taking them into account when building their frameworks, making the EU taxonomy a major influence on other sustainability standards.
Due to the high degree of interdependence of capital markets and economic supply chains worldwide, disclosure requirements for issuers of financial products and companies in the EU also influence international actors. Therefore, the EU Taxonomy also impacts non-EU countries, although it was not initially developed with the aim of obligating third countries with regard to their own sustainability activities.
The development of an increasing number of national and regional sustainability standards leads to the question of a global standard. This is particularly important as there is currently a lack of comparison between the different frameworks in the respective jurisdictions. Comparability will allow market participants to better understand the individual taxonomies, promote consistency, and highlight opportunities for collaboration. Fragmented approaches, on the other hand, can increase transaction costs and stifle international capital flows.
The discussion on internationally uniform sustainability standards will certainly be interesting - especially in view of the already strongly diverging positions in the EU, for example on the topic of nuclear energy. It remains to be seen to what extent sustainability taxonomies will be harmonized worldwide.
Sources:
Nächste Station: Einheitliche Taxonomie für nachhaltige Investitionen? - Bankenverband
Global den Ton angeben – Die EU-Klassifizierung für nachhaltige Wirtschaftsaktivitäten | The Market
People's Bank of China Green Bond Endorsed Project Catalogue (2020 Edition) | Green Finance Platform
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