

The European Commission (EC) has formed five working groups to advise it on the next phase of its sustainable finance taxonomy, including how it should address social aspects and economic activities identified as significantly harmful to sustainability objectives.
The largest of the five new working groups will advise the Commission on developing the taxonomy’s technical screening criteria (which determines the degree to which an economic activity can be considered sustainable) and detailing the remaining four environmental objectives to be covered under its first phase: the circular economy, the blue economy and water, biodiversity and pollution prevention and control.
The working groups are drawn from members of the Commission’s new 50-person Platform on Sustainable Finance, which replaces the influential Technical Expert Group (TEG) – the group of sustainable finance specialists and market participants tasked with fleshing out the technical details of the EU’s current Action Plan on Sustainable Finance, including the first iteration of the taxonomy, rules for sustainability-related disclosures, low-carbon indices and a potential green bond standard. Unlike the TEG, the new Platform is permanent and codified in the taxonomy regulation.
A fourth group will focus on the taxonomy’s implementation by future users, particularly its ease-of-use and accompanying disclosure requirements.
A second working group will explore proposals to create a new taxonomy focusing on social aspects, while a third will consider a taxonomy for ‘negative’ or polluting activities (sometimes known as ‘brown’). A social taxonomy would establish detailed social safeguards for official EU green products and potentially underpin any future socially-focused products.
Work on the ‘harmful’ taxonomy could also give rise to a separate ‘neutral’ taxonomy which would identify environmentally-neutral economic activities such as health and education.
A fourth group will focus on the taxonomy’s implementation by future users, particularly its ease-of-use and accompanying disclosure requirements. The group is envisaged as a link between financial sector participants, the Platform and the European Commission. It will also track ongoing efforts to revise corporate EU non-financial reporting standards, seen as a crucial link to provide the underlying data for product-level disclosures.
A final group, consisting of European institutions and supervisors, will monitor capital flows and carry out economic impact assessments of proposals made by the Platform.
Each working group will be allowed to make policy recommendations to the Commission. Decisions will be made centrally and include all Platform members.
While the current Platform’s mandate is due to run for two years until Q3 2022 – culminating in a Final Report – the working groups looking at the feasibility of social, negative and neutral taxonomies have been asked to report on their findings prior to that. A decision on whether to pursue their development will be made by the Commission sometime in the next year.
Helena Viñes Fiestas, BNP Paribas Asset Management’s sustainability head, and rapporteur of the data and usability subgroup, told RI: “The Platform, which includes investors, civil society groups and companies, can be seen as a microcosm of Europe compared to the original Technical Expert Group, which was a lot more financial sector-focused. Our ability to achieve consensus will, to a degree, be a test as to whether Europe will be able to develop a common approach to combat climate change.”
“There is no question that the financial sector will report against the taxonomy once regulations are introduced but for me the taxonomy will be considered successful once investors start using it voluntarily to build their portfolios.”
The EC’s Platform on Sustainable Finance should not be confused with the similarly named International Platform on Sustainable Finance, an outreach initiative by the EU to support the development of common sustainable finance rules globally.