Usability and Transition Clarity Anticipated on EU Taxonomy  

The EC is expected to release its final draft on technical screening criteria of non-climate objectives of the taxonomy this month, but there are still market concerns on omitted sectors.  

The European Commission (EC) is expected to put forward details on improving the usability of the EU Sustainable Finance Taxonomy and is anticipated to put forward communication on how the taxonomy could feed into companies’ transition plans in the coming weeks.  

Tsvetelina Kuzmanova, Senior Policy Advisor at NGO E3G, said it is anticipated to form part of the communications from the EC when it releases the final draft of the Delegated Act defining the technical screening criteria of the four environmental objectives of the EU’s Taxonomy Regulation expected this month.  

The EC has been consulting with the market on the technical screening criteria for the four environmental activities: sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevent and control, and protection and restoration of biodiversity and ecosystems. 

In consultation responses, organisations have raised concerns about missing sectors from the taxonomy and called for more clarity on the application of the technical screening criteria.  

The Platform for Sustainable Finance (PSF), the independent advisory group to the EC on the taxonomy, has released a document focused on improving the usability and applicability of the four new environmental criteria in the taxonomy to better allow for elements such as standardisation and verification.  

Excluded sectors 

E3G in its response has noted that some sectors originally proposed by the PSF have not been included in the Commission’s proposal, including chemicals, textiles, apparel and footwear, agriculture, and fishing – the exclusion of sectors, especially agriculture, was a common theme amongst consultation respondents.  

Kuzmanova said agriculture was a politically charged area currently in Europe. “The European Commission and just Europe at this point don’t want to work on this at all because it is a very controversial topic.” 

An observer said the theme of economic competitiveness is a number one concern for policymakers, and increased food prices had likely helped the agricultural lobby. French President Emmanuel Macron urged the EU to pause environmental regulation to help industry.  

Benjamin Howard-Cooper, Head of Sustainable Finance at AI-powered fintech Briink, said: “We expected to see agriculture, which is so critical. But this [taxonomy] is a work in progress. We are going to spend the next decade making this into a more reflective document of how our economy works and make it more usable over time.” 

E3G in its consultation response also said improvements needed to be made to “weak criteria” such as for the forestry sector. It also said that criteria for shipping and aviation needed to be significantly improved to not allow for “business-as-usual” polluting activities to be classified as green. The EC is under pressure on its inclusion of these sectors, as with gas and nuclear.  

The UN Principles for Responsible Investment in its response welcomed that the fact that the EC had not deviated too strongly from the technical screening criteria originally proposed by the PSF, but urged it to exclude biodiversity offsets from eligible conservation activities, as recommended by the PSF – this is also proposed by others such as WWF.  

There is also a draft Delegated Act to introduce climate change mitigation and adaption to the taxonomy.

After the adoption of the Delegated Acts, the European Parliament and the EU Council will scrutinise, and if no objections are raised they will come into force from January 2024.

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