FAQ ON TAXONOMY
What is the Taxonomy?
The Taxonomy is an EU-wide regulatory initiative that establishes a classification of environmentally sustainable economic activities with technical screening criteria. The Taxonomy was developed with the support of a Technical Expert Group (TEG) set up by the European Commission. The TEG was succeeded by the so-called 'platform on sustainable finance' as an advisory body for the European Commission, which is not to be confused with the European Sustainable Finance Platform. Taxonomy aims to provide guidance for policy makers, industry, and investors on how best to support and invest in economic activities that contribute to a climate-neutral economy.
What type of activities will be eligible for this classification system?
Today's political agreement recognises three different environmentally sustainable economic activities:
Activities that in and of themselves contribute substantially to one of the six environmental objectives
Transitional activities: Activities for which there are no technologically and economically feasible low-carbon alternatives, but that support the transition to a climate-neutral economy. Such activities support transition in a manner that is consistent with a pathway to limit the temperature increase to 1.5 degrees Celsius above pre-industrial levels, by for example, phasing out greenhouse gas emissions.
Enabling activities: Activities that enable other activities to make a substantial contribution to one or more of the six environmental objectives.
Why is Taxonomy needed?
The intention is to raise awareness and strengthen the sense of responsibility corporations and investment companies feel about the impact of certain activities on the environment, thus leading them to focus on directing more capital toward greener economic activities. The Taxonomy should also prevent green-washing and lower transaction costs.
Who initiated it?
The European Commission with its "Action plan: Financing sustainable growth" released in March 2018. The Action Plan encompasses 10 Actions, and the Taxonomy is at the heart of it.
Is it only European?
Yes, but it also applies to foreign market participants selling allegedly sustainable products in Europe, regardless of the location of the investment. The Taxonomy also applies to non-EU companies seeking financing through EU institutions. The Taxonomy may also be the seed for a worldwide standard for defining what is green and what is not.
What is EU Taxonomy and what is it not?
A list of economic activities and relevant criteria.
Flexible in adapting to different investment styles and strategies.
Based on the latest scientific research and industry experience.
Dynamically responsive to changes in science, technology and data.
A rating of good or bad companies.
A mandatory list to invest in.
A tool for judging the financial performance of an investment, as it only helps evaluate environmental performance.
Inflexible or static.
What are its objectives?
Provide clarity on what it takes to achieve the commitments made under the Paris Agreement.
Establish collective definitions for investment practices and sustainable activities.
Reward companies who take part in environmentally sustainable activities.
Promote its own environmental objectives, which are:
Climate Change Mitigation
Climate Change Adaptation
Sustainable Use and Protection of Water and Marine Resources
Transition to a Circular Economy, Waste Prevention, and Recycling
Pollution Prevention and Control
Protection and Restoration of Biodiversity and Ecosystems
What economic activities are included in the Taxonomy?
The Taxonomy consists of 72 NACE-defined industry sections. You can review them here.
The Taxonomy regulation was published in the Official Journal of the European Union on 22 June 2020 and entered into force on 12 July 2020. The Taxonomy Delegated act for climate change mitigation and climate change adaptation was adopted on 4 June 2021. For the four other environmental objectives, the Taxonomy delegated act will be published in 2022.