EU Taxonomy: Driving Sustainable Investment and the Green Deal
The European Green Deal represents a transformative strategy for the EU, aiming for a fair, prosperous, and resource-efficient society. This vision includes achieving net-zero greenhouse gas emissions by 2050, safeguarding the environment and citizen health, and fostering economic growth through sustainable resource utilization. It’s about turning environmental challenges into economic opportunities, strengthening the EU’s social market economy, and ensuring a stable, job-creating, and investment-friendly future. The urgency of these goals has been amplified by the socio-economic impacts of the COVID-19 pandemic, underscoring the necessity for a sustainable, inclusive, and equitable recovery.
The EU Taxonomy Regulation (2020/852) is a cornerstone of this strategy. Born from the 2018 Action Plan on Financing Sustainable Growth, it’s designed to redirect capital towards sustainable activities, thereby fueling the European Green Deal. This regulation establishes a common language, defining environmentally sustainable economic activities with uniform criteria for companies and investors. These activities must substantially contribute to EU environmental objectives—like climate change mitigation—while avoiding significant harm to other environmental goals. The Taxonomy promotes transparency, consistency in classifying sustainable activities, and reduces greenwashing risks, without obligating investors to exclusively target taxonomy-aligned activities.
Image alt text: Sustainable finance growth visualized, depicting upward trend lines and green icons representing environmental investment and economic prosperity.
The COVID-19 pandemic’s economic repercussions have highlighted the critical role of sustainable development. Redirecting investment towards sustainable projects is crucial for building resilient economies, businesses, societies, and healthcare systems, better equipped to withstand climate and environmental shocks. The European Green Deal and the EU Taxonomy serve as vital instruments for a robust and sustainable recovery, enabling financial markets to play a central role.
For an economic activity to be deemed environmentally sustainable under the Taxonomy Regulation, it must meet four key conditions:
- Substantial Contribution: It must significantly contribute to one or more of the six environmental objectives outlined in Article 9 of the Taxonomy Regulation (climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems).
- Do No Significant Harm (DNSH): It must not significantly harm any of the other environmental objectives, as defined in Article 17.
- Minimum Safeguards: It must adhere to minimum social safeguards, as specified in Article 18.
- Technical Screening Criteria: It must comply with technical screening criteria established by the European Commission through delegated acts.
These technical screening criteria are crucial. They define the performance benchmarks for economic activities to qualify as making a substantial contribution to an environmental objective and ensuring they do no significant harm to others. This Delegated Regulation provides these specific criteria for climate change mitigation and adaptation.
Image alt text: EU Taxonomy framework diagram showcasing six environmental objectives: climate mitigation, adaptation, water protection, circular economy, pollution prevention, and biodiversity conservation, illustrating interconnectedness.
The Commission is committed to regularly reviewing and updating these technical screening criteria, at least every three years for transitional activities, in line with Article 19(5) of the Taxonomy Regulation. These updates will be informed by scientific and technological advancements, input from the Platform on Sustainable Finance, and the practical experiences of financial market participants. This iterative process ensures the criteria remain relevant, effective, and contribute to channeling investments towards environmentally sustainable economic activities, aligning with the goals of the European Green Deal and promoting a sustainable future.