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The European Commission introduces a new regulatory framework known as the EU Taxonomy, which aims to foster sustainable investments. All-in-all, the goal is to direct investments in sustainable activities to reach a climate-neutral EU by 2050. The regulation includes a Directive for Corporate Sustainability Reporting and Delegated Acts that help defining what is sustainable.
It is positive to see how policymakers in the European Commission are acting together to create a common language when it comes to sustainable business practices. The EU Taxonomy will demand more transparency from businesses to show how their activities ‘score’ on the sustainability scale, thus being able to get a ‘right’ to be supported financially. Let us have a closer look at what it is actually about.
Carbon neutral Europe in 2050
In short, the European Commission has put forward a European Green Deal, an ambitious plan to become the first carbon-neutral economic area in the world by 2050 in an effort to limit global warming as required by the Paris Agreement. The Green Deal outlines commitments to make the EU’s economy sustainable and provides a set of proposals to cut emissions by at least 55% by 2030, compared to 1990 levels, and then reach a net-zero target by 2050.
To reach the ambitious goals, the finance flows must be directed towards investments in low emission and sustainable technologies, activities, and projects. On that note, the European Commission has published the EU Taxonomy – a legislative classification framework – which defines what economic activities can be classified as sustainable. The intention is clear: to establish a clear and common language for what is sustainable and direct more investments towards sustainable projects and activities.
Politically bound Taxonomy alignment – how does it work?
The EU Taxonomy outlines six environmental objectives with the purpose of creating alignment, i.e. supporting the screening of activities against alignment criteria (including metrics and thresholds). For the companies covered by the Non-Financial Reporting Directive, the taxonomy alignment should be a part of a yearly disclosure starting in 2022.
Who is affected?
Are you a large company covered by the Non-Financial Reporting Directive? Or a financial market actor? Then you will be required to disclose according to the Taxonomy. The European Commission also plans to develop proportionate standards for SMEs, which non-listed SMEs can use voluntarily. If you want to prepare your company, check out SustainX’s Sustainability Networks, where you will be involved in defining industry best practice and get the newest updates regarding potential standard developments together with other market players. You can read more about them here.
Still confused?
The EU Taxonomy is detailed and complex. If you still have some questions or would like to know how your company approaches the new regulations in the best way, you are always welcome to reach out to one of our sustainability experts.