The Platform on Sustainable Finance delivered its opinion to the European Commission on Friday 19 March on how the EU’s sustainable finance taxonomy could concretely help businesses in their ecological transition.
Overall, the Platform recognises that taxonomy is an important tool for financing this transition and provides recommendations on how to further strengthen its potential.
“The degree of exposure to activities or assets aligned with the taxonomy can help communicate the climate transition for a sector, portfolio or company, including making clear which activities are compatible with the transition to a low-carbon economy”, it writes.
To maximise the potential of the taxonomy, the Platform recommends, among other things, that the Commission communicate more about how the taxonomy is already supporting transition funding and to ensure that the reporting requirements allow companies and investors to communicate their transition plans.
The report also addresses some of the issues raised during the public consultation on the first draft delegated act establishing the taxonomy for climate change mitigation and adaptation, which received over 46,000 responses (see EUROPE 12643/23) and is being intensively lobbied on (see EUROPE 12677/7).
It further recommends updating the delegated act to ensure that similar activities are recognised consistently across different sectors.
It should be noted that it also suggests including more “enabling” activities in the taxonomy, in different sectors focused on energy efficiency.
Possible extensions of the current framework
The Platform also recognises the limitations of the current framework and provides suggestions for extending the taxonomy, including the development of criteria for activities that do not have a significant impact on the twelve identified environmental goals.
Clarity on what activities have little or no impact could help companies and investors make investment decisions. The Platform intends to provide initial recommendations on this issue by May 2021, with a final report expected by September 2021.
The Platform is also exploring the possibility of recognising significant improvements in the performance of activities that come close to, but do not meet, the criteria for substantial contribution. This could help companies report on their transition, it explains.
In the same vein, it envisages identifying activities in the taxonomy that could make a substantial contribution by allowing the cessation of activities that cannot improve to a level of performance better than that of “significant nuisance”.
Other tools
To further support transition financing, the Platform recommends exploring other tools, including the European green bond standard (see EUROPE 12505/31). In this respect, it asks the Commission to clarify the link between this future standard and the taxonomy.
To help companies move from “significant harm” to “substantial contribution” it also suggests using the taxonomy’s criteria to establish “transition paths”, for certain levels of environmental performance, which could be applied to specific economic activities. The performance of the business is then expected to improve to a substantial contribution over the defined transition period.
The Platform also believes that the requirements of the Climate Transition Index, which the co-legislators agreed the creation of in February 2019 (see EUROPE 12202/12), should be used to define climate transition at company level.
The Commission welcomed the Platform’s recommendations and will take them into account when finalising its draft delegated act, expected around 21 April.
See the report: https://bit.ly/2PcB8Z1 (Original version in French by Marion Fontana)