FAQ ON TAXONOMY

What is the Taxonomy?

The Taxonomy is an regulatory initiative at European level 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 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 types of environmentally sustainable economic activities:

  • Activities that in and of themselves contribute substantially to one of the six environmental objectives

  • Transition 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 did initiate it?

The European Commission with its "Action plan: Financing sustainable growth" released on March 2018. The Action Plan encompasses 10 Actions, and the Taxonomy is at the heart of it.

Is it only European?

Yes, but it applies also to foreign market participants selling allegedly sustainable products in Europe, no matter 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 Taxonomy is and  is not?

TAXONOMY IS:

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.

TAXONOMY IS NOT:

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 of Healthy Ecosystems

What economic activities are included in the Taxonomy?

The Taxonomy consists of 72 NACE-defined industry sections. You can review them here.

What next?

The Taxonomy regulation was published in the Official Journal of the European Union on June 22, 2020 and entered into force on July 12, 2020. The Taxonomy for climate change mitigation and climate change adaptation should be established by the end of 2020, in order to ensure its full application by end of 2021. For the four other environmental objectives, the taxonomy should be established by the end of 2021 and will apply by the end of 2022.