The Technical Expert Group on Sustainable Finance set up by the European Commission delivered its much-awaited final recommendations on Monday 9 March on the European taxonomy, which should make it clear to investors which activities are considered environmentally sustainable.
In their final report (https://bit.ly/2vHrzIw ), the experts revisit several changes to the taxonomy brought about by the political agreement reached between the co-legislators in December 2019 (see EUROPE 12393/20), which “maintains many aspects of the Commission’s proposal, but reconsiders parts of the scope, user obligations, timeline, and technical framework”, according to them.
The expert group is particularly supportive of the revision clause asking the Commission to consider extending the scope of the taxonomy to investments with significant adverse environmental impacts.
This would create three performance levels within the taxonomy: - a ‘green’ category for activities that contribute significantly to one of the six environmental objectives; - a ‘brown’ or ‘red’ category for activities that cause significant damage to the environment; - an intermediate category for activities that do not fall into either of these two categories.
“Incorporating ‘brown’ criteria in the taxonomy will greatly assist companies and other issuers in explaining incremental improvements in their activities and receiving some positive recognition in the market”, the report says.
The report is accompanied by a technical annex of almost 600 pages (https://bit.ly/3aDvF2R ) that contains revised selection criteria for 70 economic activities considered to contribute to climate change mitigation and new criteria for 68 activities contributing to climate change adaptation.
Compared to the report published in June 2019 (see EUROPE 12277/20), the new report has modified some selection criteria, in particular for manufacturing and forestry, to take into account comments made by industry during the summer, while those for the energy, transport, agriculture, and waste sectors have not been substantially modified.
The Council of the EU and the European Parliament agreed to explicitly exclude power generation activities based on solid fossil fuels, such as coal. With regard to nuclear energy and gas, which were the subject of a fierce battle (see EUROPE 12381/13), the matter will be addressed at another time.
The expert panel confirms its recommendation to exclude fossil fuels and indicates that it does not recommend the inclusion of nuclear energy in the taxonomy at this stage.
“It was not possible for the technical expert group or its members to conclude that the nuclear energy value chain does not cause significant harm to other environmental objectives”, it says. The group recommends further technical work on this issue.
In a subsequent statement, the WWF organisation welcomed the exclusion from the taxonomy of investments in nuclear energy, gas, and certain types of bioenergy. Nevertheless, they felt that the report was too “lax” in areas such as forestry and hydroelectricity.
For its part, Zero Waste Europe welcomed the group’s recognition that energy recovery from waste should be excluded as it undermines the environmental objectives of the circular economy.
For its part, T&E said it was satisfied that only investments in the production of zero-emission cars, such as electric vehicles, could be called sustainable, according to the report, but said the EU should not include trucks and ships claiming to use bioenergy, as recommended by the expert group.
Green bonds. On the same day, the expert group also published a usability guide (https://bit.ly/2v6ZSIJ ) to the European green bond standard. In their June report, the experts had recommended that the Commission create a “voluntary, non-legislative European standard on green obligations”. In their view, any type of listed or unlisted bond and any debt instrument on the capital market issued by a European or international issuer that is aligned with this standard should be eligible for an ‘EU green bond’ designation.
The work of the expert group is nearing completion, although it will continue to meet until September 2020. The ball is now in the court of the European Commission, which will decide whether or not to follow these recommendations for the development of taxonomies and when it decides on the form that a European green bond initiative should take. (Original version in French by Marion Fontana)