The European Union passed the first part of its rulebook on climate friendly investments, which from next year will define which activities can be labelled as green in transport, building, and other sectors. The first section of the EU’s sustainable finance taxonomy will now apply from January 1, 2022, clearing the review period that ended on December 7th. The rules set environmental criteria for investments including renewable energy, shipping, and auto manufacturing – with zero-emission vehicles the only type that can be labelled green from 2026.
What is the EU Taxonomy?
The EU Taxonomy was introduced in 2018 as part of the EU Action Plan on Sustainable Finance, established by the EU Technical Expert Group on Sustainable Finance (EU TEG). The taxonomy is a classification system enabling the categorization of economic activities that play key roles in contributing to at least one of six defined environmental objectives, which include:
What does this mean for organizations?
With the first delegated act approved, the first two climate objectives will start implementation in January 2022, enabling companies to begin reporting against the taxonomy, and for investors and financial market participants (FMPs) to prepare for upcoming SFDR requirements, which were just recently delayed until January 2023, a year past the initial date. While the taxonomy has been cleared to become law, the classification of some activities remains unclear, like the use of fossil-based natural gas, for example.
Companies should assess which of the taxonomy objectives apply to them and create a plan around reporting along these objectives.