TAXONOMY: AN EU INITIATIVE TO PROMOTE SUSTAINABILITY IN THE FINANCIAL SECTOR
To overcome the comprehensive threats of climate change and environmental degradation, Europe has adopted the Green Deal as a new strategy to promote growth while reducing greenhouse gases emissions and protecting the environment. As part of the effort to make EU's economy sustainable, a new regulatory framework has been set to help the financial market adjust to these challenges, and to foster private capital flows towards sustainable investments.
What is Taxonomy
Taxonomy is the EU Classification system for sustainable activities .
It is a tool for determing the environmental performance of economic activities across a wide-range of industries, which in turn helps investors, companies, issuers and project promoters navigate toward a low-carbon, resilient and resource-efficient economy.
TAXONOMY IS YOUR GUIDE TO FINDING A CREDIBLE SCIENCE-BASED PATHWAY TO BECOME CLIMATE NEUTRAL
Environmental Objectives
1. Climate change mitigation
2. Climate change adaptation
3. Protection of water and marine resources
4. Transition to a circular economy
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems
How it works
Taxonomy sets requirements that activities must meet in order to be considered sustainable. It sets performance thresholds for economic activities that:
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Can make substantial contribution to at least one of the six environmental objectives;
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Do no significant harm (DNSH) to any of the environmental objectives;
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Comply with minimum safeguards.
Why use Taxonomy?
Taxonomy provides clarity and transparency on environmental sustainability criteria, thereby enabling investors, financial institutions, and companies to use informed decision-making to foster investments in environmentally-sustainable activities and to encourage private capital flows towards sustainable investments.
STAKEHOLDER RESPONSIBILITIES
Financial Market Participants
Financial Market Participants offering financial products in EU have to provide for each relevant product, information on:
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How and to what extent they have used Taxonomy for determining the sustainability of underlying investments for their products.
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The proportion of underlying investments that are taxonomy aligned, expressed as a percentage of the total investment, fund or portfolio.
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Details on the respective proportions of enabling or transition activities.
Non-financial Companies
Non-financial companies that are already required to provide a non-financial statement under the Non-Financial Reporting Directive are now also required to provide a description of how and to what extent their activities are taxonomy aligned, including:
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The proportion of turnover aligned with the Taxonomy.
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Whether or not Capex, and if relevant, Opex, is aligned with Taxonomy.
IMPLEMENTATION TIMELINE
December 31 2020
Financial Market Participants
Technical screening criteria for climate change mitigation and adaptation
June 31 2021
Non- financial companies
Technical screening criteria for climate change mitigation and adaptation
December 31 2021
Financial Market Participants
Technical screening criteria for other environmental objectives
Disclosure in relation to climate change mitigation and adaptation in periodic reports, pre-contractural disclosures and on websites
Non- financial companies
Disclosure for activities related to climate change mitigation and adaptation covering financial year of 2021
December 31 2022
Financial Market Participants
Disclosure in relation to all environmental objectives in periodic reports, pre-contractual disclosures and on websites
Non- financial companies
Disclosure for activities related to all environmental objectives covering the financial year of 2022
We connect you to the most qualified experts in sustainable finance to help you assess whether or not your investment is eligible under EU Taxonomy.
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Taking longer-term sustainability interests into account makes economic sense and does not necessarily lead to lower returns for investors.