EU kicks off consultation into green finance ‘taxonomy’

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Market participants are being asked for their views on the ground-breaking EU green finance taxonomy today, as a public consultation launches, outlining how the classification system will be put together.

The Technical Expert Group on Sustainable Finance, a 35-strong team chosen earlier this year by the European Commission to help it develop various planks of its Action Plan on sustainable finance, are calling for technical input and feedback to help put meat on the bones of the much-anticipated taxonomy – a first version of which is slated for next year.

The new consultation has two main purposes:

1. To put forward a set of proposals for the first series of activities the TEG will turn its attention to: activities that “contribute substantially” to climate change mitigation. Currently, these include agriculture, forestry & fishing, manufacturing, transport and buildings.

2. The usability of the taxonomy from a decision-maker perspective.

A new 108-page document outlines the preliminary results of the first few months of work from TEG, which in turn has built on the work done by key players such as multi-lateral development banks, the Climate Bonds Initiative, European pension funds and the High Level Expert Group on Sustainable Finance. It also lays out the second round of work, to begin in the New Year, and a broader time line for the taxonomy’s release.

“The ultimate aim is to develop a system that provides businesses and investors with clarity on which activities are considered sustainable so they take more informed decisions,” explained the European Commission in a statement.The new document is not a formal draft of the taxonomy, but just clarifies the focus areas, and the requirements and principles that will be applied when choosing eligible economic activities.

“To develop a system that provides clarity on which activities are considered sustainable”

The environmental taxonomy (there are suggestions that a wider sustainability taxonomy will be developed over the longer term), will eventually cover the following areas:

1. Climate change mitigation
2. Climate change adaptation
3. Water and marine resources
4. Circular economy, waste prevention and recycling
5. Pollution
6. Healthy ecosystems.

No activities should contribute “significant harm” to any of the six objectives, the document confirms.
Part of the consultative process will include workshops throughout next year, hosted by the Commission in a bid to “gather expertise” in areas the TEG has identified itself as lacking knowledge. Experts can apply to attend these workshops here.

As with much EU law-making, the taxonomy process has two parts to it. The TEG’s work comes under ‘Level 2’, which relates to the technical development of legislation. Concurrently, a ‘Level 1’ process is going on at the European Parliament, which will decide the legal weight and remit of the taxonomy. Market feedback is being sought until February 22.