

A draft of Europe’s flagship ‘green taxonomy’ has been released today, alongside recommendations to lawmakers on creating low-carbon benchmarks, increasing ESG disclosure for indices and developing an EU green bond standard.
The guidelines for the Non-Financial Reporting Directive have also been updated to include advice on how to align disclosures with the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD).
The Technical Expert Group on Sustainable Finance (TEG) – the 35 experts from the financial markets and civil society that were appointed to advise the European Commission on what sustainable finance legislation should look like in detail – has released three reports, on the back of numerous public consultations over the past year.
The first report focuses on the taxonomy: a classification system that identifies business activities and emissions thresholds that are consistent with a carbon neutral economy by 2050. The TEG has released a 414-page technical report, which presents eligibility criteria for 67 activities. It has also published a 26-page users’ guide to help financial market participants and observers navigate the framework.
The legislative proposal for the taxonomy – the only one yet to reach political agreement between EU Parliament, Council and Commission – currently includes a requirement for certain ‘green’ products, such as UCITS funds, to disclose against the taxonomy. It does not require alignment with the taxonomy.
The second report published today is an attempt by the TEG to outline minimum technical requirements for low-carbon indices, and ESG disclosures for benchmarks more broadly. It was supposed to include final recommendations, but the TEG’s original mandate on benchmarks was overhauled completely in the Spring, when political negotiations saw European Parliament make the legislation more ambitious.As a result, the TEG had to go back to the drawing board, and has proposed an initial definition of Climate Transition Benchmarks (CTBs) and Paris-Aligned Benchmarks (PABs), in line with the new mandate; and addressed ESG disclosure requirements for all indices being offered within the EU.
It means new acronyms enter the European lexicon (EU CTBs and EU PABs).
The third report focuses on whether the EU should use the evolving taxonomy as the basis of a law around green bonds. The EU Green Bond Standard would be a voluntary guideline to encourage best practice in the market, but – in much the same way as in China, India and other Asian countries – bonds that don’t comply with the standard would not be entitled to be marketed as EU green bonds.
Finally, today saw the non-binding guidelines of the Non-Financial Reporting Directive updated to namecheck the TCFD. All 11 of the TCFD’s recommendations are included in the new guidelines, in a bid to encourage banks, corporates, insurers and asset managers to standardise their climate reporting.
Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union, framed the new guidelines in the context of the “climate emergency” – an expression being taken up by many governments in Europe.
“Today’s new guidelines will help companies to disclose the impact of the climate change on their business as well as the impact of their activities on climate and therefore enable investors to make more informed investment decisions,” he said. “I also welcome the three reports by the Technical Expert Group, which are an important contribution to European policy-making and global debate on green finance.”
RI will be looking at today’s reports in greater detail.