Note: A section of this article starting at Paragraph 7 was amended for accuracy after publication
The European Commission has today laid out its final definitions for what will count as climate-aligned under its green taxonomy, just hours after it agreed an EU Climate Law that commits the bloc to cutting emissions by 55% by the end of the decade.
A Delegated Act has been released outlining criteria and thresholds for business activities that support the EU’s climate goals – both in terms of reducing Europe’s carbon emissions, and managing extreme weather events and other symptoms of global warming. It also lays out the ‘do-no-significant-harm’ criteria for climate, biodiversity, waste, water and the circular economy.
The plans have been at the centre of a dramatic – and very public – tug of war in recent weeks, between environmental experts, governments, politicians and industry lobbyists. Leaked drafts earlier this month showed that the Member States and trade bodies had swayed the Commission at the last minute to include fossil-based gas in its plans. Coal has been off the table since early on in the negotiations, having been excluded during the creation of the taxonomy's basic legislative agreement (known as Level 1). Other conventional energy sources were expected to be filtered out subsequently, and were ruled out by the EU’s official advisors on the Technical Expert Group for Sustainable Finance last year.
However, both gas and nuclear have crept into the technical rules (known as Level 2) recently, prompting nine of the Commission’s green advisors to publicly threaten to quit two weeks ago. This was followed by an open letter from Nathan Fabian, Chief Responsible Investment Officer for the Principles for Responsible Investment and head of the EU’s advisory group, citing “deep concerns about the environmental soundness of recent technical screening criteria [regarding] economic activities related to fossil fuels, forestry and bioenergy”. The letter urged the Commission to stick to “a science and evidence based taxonomy”.
Speaking at a press conference today, Valdis Dombrovkis, Vice President of the Commission, said: “This has not been an easy task, and I can frankly say that on no other issue have I seen such wide ranging positions, opposing views and approaches. We had to bridge those differences.”
“Now I believe that we have produced a balanced and ambitious proposal that will be a template for Europe’s green future. It will help companies and investors identify and communicate about green activities across all sectors of the economy… And it will be the basis for setting reliable labels and standards for financial products.”
For now, gas and nuclear remain out of the taxonomy, but the Commission will review this later in the year. On forestry, small improvements have been made relating to the size thresholds for projects, but broadly the technical screens remain the same, as do those for bioenergy.
In a statement today, Fabian said the platform of experts he leads will “study the adopted criteria to understand where they deviate from expert recommendations, and the evidence used to support these changes”.
There will now be a four-month period in which the European Parliament and Council can veto the proposals, but this is considered highly unlikely as it would require prohibitively large majorities.
Alongside the launch of the taxonomy rules, the EU also released six Delegated Acts to amend existing rules on investor duties and investment advice to incorporate sustainability.
The other big move was the long-awaited overhaul of the Non Financial Reporting Directive, which will now be known as the Corporate Sustainability Reporting Directive. That will significantly widen the number of companies required to report sustainability data. Crucially, all companies covered by the Directive are also covered by the taxonomy regulation, meaning that – if the proposals get the green light – many more companies will now have to provide taxonomy-aligned information to investors, making compliance with the rules easier. For more on the new Directive, see here.
The UK has also moved forward with its green taxonomy for the first time since plans were announced for its creation in November. Yesterday, the UK’s City Minister and Economic Secretary to the Treasury, John Glen, confirmed that the government is forming a Green Technical Advisory Group to advise it on implementing a national taxonomy. Members of the group have not yet been decided, but it will be co-chaired and coordinated by the Green Finance Institute (GFI) – a partnership between the Government and the City of London set up in 2019.
“The Green Technical Advisory Group will be a group of experts tasked with providing independent, non-binding advice to Government on how to effectively implement a taxonomy in the UK, including sector specific technical expertise where needed,” GFI said in a statement. “As a first step, the Green Finance Institute will provide independent advice, in consultation with industry, on the group’s membership and its work plan.”