Taxonomy Regulation

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The Commission is also consulting on proposed targeted amendments to the Taxonomy Climate Delegated Act and on the Taxonomy Disclosures Delegated Act.

By Paul A. Davies, Michael D. Green, and James Bee

On 5 April 2023 the European Commission opened a consultation on its proposal for four additional environmental objectives under the EU Taxonomy Regulation[1] (the Taxonomy), including: (i) sustainable use and protection of water and marine resources; (ii) transition to a circular economy; (iii) pollution prevention and control; and (iv) protection and restoration of biodiversity and ecosystems.

The Commission is seeking feedback on technical screening criteria (TSC) for economic activities that may substantially contribute to one or more of those four environmental objectives. The TSC do not only identify the technical requirements that an activity must meet to be considered to make a substantial contribution to one of these areas, they also specify the conditions by which the activities can be considered to not do any significant harm to the remaining areas.

The Commission has already adopted TSC related to the economic activities of two other environmental objectives: climate change mitigation and climate change adaptation.

The Commission is also proposing amendments to the Taxonomy Climate Delegated Act, introducing additional activities that may be considered to substantially contribute to climate change mitigation or climate change adaptation, as well as the Taxonomy Disclosures Delegated Act.

Recent developments show how innovative sustainable finance instruments can help the transition to greener financial markets.

By Paul A. Davies and Edward R. Kempson

The EU Taxonomy Regulation[1] (the Regulation), which entered into force in July 2020, is one of the most significant developments in sustainable finance. The Regulation creates a classification system for green and sustainable economic activities (the Taxonomy) that is intended to be used by market participants in the EU and beyond to navigate the transition to a low-carbon, resilient, and resource-efficient economy. Under the Taxonomy, in order for an economic activity to be classified as “green”, it must (i) substantially contribute to one of six environmental objectives,[2] (ii) do no significant harm to the other five objectives, (iii) comply with certain governance safeguards,[3] and (iv) comply with specific science-based performance thresholds (or “technical screening criteria”).

The sustainable finance classification system entered into force on 12 July 2020, providing a framework for other green initiatives.

By Paul A. Davies and Michael D. Green

On 12 July 2020, the EU’s regulation on the establishment of a framework to facilitate sustainable investment (the Taxonomy Regulation) entered into force, after several years of planning and deliberation. The EU Commission (the Commission) initially proposed an action plan on financing sustainable growth in March 2018. Action 1 of the plan called for the establishment of an EU classification system for sustainable activities (the Taxonomy). Subsequently, in May 2018, the Commission proposed the Taxonomy Regulation, as reported on in a previous blog post.