The German government’s expert advisory committee on sustainable finance has called on the European Commission to address challenges regarding the EU taxonomy, and is pushing for the development of a social taxonomy. 

This comes after plans to extend the EU taxonomy to cover social objectives were reportedly shelved last year. 

The German independent committee, which is comprised of experts from finance, academia, corporates and civil society, highlighted a range of challenges surrounding the implementation of the EU taxonomy in a report published this week. It made a number of recommendations, including the development of a social taxonomy and a separate framework for transitional activities.

The analysis – which has been sent to the Commission – follows dialogues the group has had with German non-financial companies, financial companies and auditors.  

Antje Schneeweiß, committee member and managing director at German church investment group Arbeitskreis Kirchlicher Investoren, told Responsible Investor that the group “welcomes the EU taxonomy; however, also points to practical problems companies and banks are currently struggling with when implementing it”. 

This week’s report highlighted various inconsistencies and ambiguities in the EU taxonomy’s minimum social safeguards.

The safeguards were initially agreed in 2020 as part of the taxonomy regulation, in a bid to ensure that green investments do not undermine the EU’s broader sustainability objectives, as laid out in the OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights, the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights. 

The German group said it is unclear whether the safeguards generally refer to an entity level or to an economic activity.

This is because the section of the taxonomy regulation specifically focused on minimum safeguards refers to the entity “that is carrying out an economic activity”, while another section states that an economic activity qualifies as environmentally sustainable if “it is carried out in compliance with the minimum safeguards”, it noted. 

The group also called on the Commission to determine the consequences of amendments to the external standards that anchor them. This follows the news in February that the OECD has closed a consultation on draft potential updates for its guidelines. 

In addition, the group asked for more clarity around and a “systematic examination” of the taxonomy’s “do no significant harm” (DNSH) criteria.

For Schneeweiß, after the problems flagged in the report are solved, “the council advises that the EU taxonomy should be enlarged towards transitional activities and social activities, like social housing and care services”.   

Schneeweiß was also the rapporteur of the EU advisory group focused on extending the EU taxonomy to social objectives. 

During its run, the previous iteration of the platform submitted reports to the Commission on what a social taxonomy and an environmental transition taxonomy could look like. 

When RI last week asked new platform chair Helena Viñes Fiestas if any there would be any further work on these, she said it “will work on how to facilitate transition finance”.   

Version two of the platform will predominantly focus on the usability of the bloc’s taxonomy, as well how the taxonomy is enlarged and expanded to new activities, such as enabling activities or expanding the adaptation taxonomy. It will also be developing a methodology and start to monitor capital flows towards sustainable investments. 

Responding to the committee’s paper, an EU official told RI: “We welcome this contribution from the German SF Advisory Committee.”