Updated: Jun 9, 2021
Our generation needs to find an answer to a pressing issue: What kind of an environment do we want to leave for the future generations? The European Union decided to tackle this question and provide the best possible answer, in a form called EU Taxonomy.
What is EU Taxonomy? It is a tool to define the environmental performance of economic activities across a wide range of industries, helping investors, companies, and issuers to navigate to low-carbon, resilient and resource-efficient economy. It is a new regulatory framework, that will help financial market to adjust to challenges of climate change and environmental degradation.
It will provide clarity and transparency on environmental sustainability criteria to investors, financial institutions, and companies, and thereby enable informed decision-making when investing in environmentally sustainable activities. In addition to that, it will also save time and money for investors and issuers because they can focus on things that they do best while knowing they are investing in environmentally sustainable projects.
Although EU Taxonomy indicates three groups of main taxonomy users, which are Financial market participants, large companies and EU Member States, small and medium companies, who are not obligated to publish non-financial statements can also benefit from Taxonomy. By publishing their information on their website regarding alignment with Taxonomy, this would then help them raise finance at better conditions for their investments and business operation.
The disclosure obligations apply to anyone offering financial products in the EU, regardless of where they are based. Companies can attract investors by stating they are Taxonomy aligned for which it is expected that the EU Taxonomy will have a much broader impact and influence internationally over time.