The Final Taxonomy Report shows the net zero emissions transition of the European Union

The TEG (Technical Expert Group on Sustainable Finance) has issued its final recommendations on Taxonomy to the European Commission.

The EU taxonomy is a tool to help investors, companies, issuers and project promoters to transition to a low-carbon, resilient and resource-efficient economy.

The taxonomy establishes performance thresholds (called "technical screening criteria") for economic activities which:

  • they make a substantial contribution to one of the six environmental objectives defined in Taxonomy;
    1. Climate change mitigation
    2. Climate change adaptation
    3. Protection of water and marine resources;
    4. Transition to a circular economy
    5. Pollution prevention and control;
    6. Protection and restoration of biodiversity and ecosystems.
  • do not significantly damage the other five objectives, where relevant;
  • meet the minimum guarantees (for example, the OECD Guidelines on Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights).

What has changed since the report published in June 2019?

This is the third TEG report which follows over 20 months of technical work which has involved more than 200 technical experts; the new report describes the changes to the taxonomy after the political agreement, explaining the climate adaptation activities and providing a broad guide to the implementation of the taxonomy, including the minimum guarantees included in the taxonomy regulation.

Climate adaptation criteria for 68 economic activities have been included, in addition to climate mitigation criteria. The criteria require an in-depth risk assessment and a plan to address all material vulnerabilities to economic activities in order to consider related expenses aligned with the taxonomy. To support investors and companies, substantial recommendations for new users for taxonomy implementation were provided in the recommendations.

The taxonomy report is complemented by the usability guide for the EU Green Bond standard. The green bond proposal aims to ensure that the investments financed contribute to the EU's environmental objectives by following the taxonomy criteria.

Future developments

The transition to a climate neutral economy by 2050 requires clear tools and guidelines, reflecting scientific evidence and market experience, to give companies and investors confidence to act.

According to the recently agreed taxonomy regulation (which will come into force in 2021), investors and companies will reveal the environmental performance of the activities in which they invest, building trust and security in the green and sustainable economy.

The EU plans to include further economic activities in the taxonomy through a new platform on sustainable finance, which is expected to be operational by the end of 2020.

By providing criteria for activities in sectors that produce 93% of European emissions, the taxonomy is expected to significantly broaden the market understanding of the sustainable funding opportunities available today.

The performance thresholds will help companies, project promoters and issuers to access green finance to improve their environmental performance, as well as help identify which activities are already green. In this way, you will contribute in concert to the growth of low carbon sectors and to favor the decarbonisation of high carbon sectors.

The EU taxonomy is one of the most significant developments in sustainable finance and will have far-reaching implications for investors and issuers working in the EU and beyond.

SOURCE

The Final Taxonomy Report shows the net zero emissions transition of the European Union