Taxonomy: EU-wide Classification System for Sustainable Investments

Constanze Illner CSR & Responsible Sourcing, Environment, News

How exactly do you define sustainable economic activity? This is still a tricky question. However, a common language is the basis for effective and target-oriented action. For this reason, the news from December 18, 2019 is a milestone for the future of our planet: The European Commission has welcomed the world’s first-ever “green list” – a classification system for sustainable economic activities, referred to as taxonomy.

Financial markets play a vital role in preventing a climate crisis: the European Commission wants to redirect capital to economic activities and projects that are truly sustainable. Social responsibility and ecological economic activity shall become a competitive advantage.

This new taxonomy is an important cornerstone of the Commission’s action plan: the taxonomy helps determine which activities can be considered sustainable and will be the basis for standards and labels that characterize sustainable finance investments, such as the Climate Bonds Standard or the European Green Bond Standard. For the first time, investors will be provided consistent, comparable and transparent information, enabling them to verify whether their investments are truly sustainable.

Commission Executive Vice-President Valdis Dombrovskis for an Economy that Works for People, said: “This piece of legislation will be a game-changer in terms of tackling climate change, because it will enable billions in green investments to flow. Thanks to this green list, or taxonomy, investors and industry will for the first time have a definition of what is ‘green’, which will give a real boost to sustainable investments. That will be crucial for the European Green Deal to become a reality.”

Context: The European Green Deal

The European Green Deal has been introduced on December 11, 2019 by the European Commission. This new strategy for growth aims for Europe to be the first continent to become carbon neutral.

In order to trigger sustainable investments in the region of 1 trillion Euro the Green Deal Investment Plan has been set up on January 14, 2020. Funds are to enable public as well as private investments in their quest for a carbon neutral, green yet competitive and incorporating economy.

 “Ecologically Sustainable Economic Activities” – what exactly does that mean?

Now, let’s go back to the taxonomy and the problem of properly defining “ecologically sustainable economic activities”.

The taxonomy provides a framework of six objectives outlining “ecologically sustainable economic activities”:

1)            Climate change mitigation

2)            Climate change adaption

3)            Sustainable use and protection of water and marine resources

4)            Transition to a circular economy

5)            Pollution prevention and control

6)            Protection and restoration of biodiversity and ecosystems

Moreover, the taxonomy contains four requirements for sustainable activities:

  • They provide a substantial contribution to at least one of the six environmental objectives above
  • They cause “no significant harm” to any of the other environmental objectives
  • Compliance with the robust and science-based technical screening criteria AND
  • Compliance with minimum social and governance safeguards

This link leads to the press release of the European Community. Here you can access background information on the European Green Finance plans.

The Next Steps

In September 2020, the European Commission will present an updated Sustainable Finance Strategy. This link will direct you to the factsheet “Financing Sustainable Growth”

The European Green Bond Standard is likely to be developed in the foreseeable future. We shall keep you posted in our newsletter.

What DQS Can Do For You

DQS is globally approved for the verification of Climate Bonds. This link will provide you with all the important information.

Contact us if you have any questions.

Learn more at the Sustainability Heroes Conference

Sustainability in finance is gaining importance and is therefore one of the core subjects of the Sustainability Heroes Conference 2020. The conference takes place on May 12, 2020 in the Maritim Hotel Düsseldorf. Book your seat today!

Constanze Illner Administrator
Constanze Illner is Research & Communication Officer at DQS CFS GmbH
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Constanze Illner Administrator
Constanze Illner is Research & Communication Officer at DQS CFS GmbH
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