A key objective of the European Commission’s (‘Commission’) action plan on financing sustainable growth is to reorient capital flows towards sustainable investment and ensure market transparency. To achieve this objective, the Commission called for the creation of an EU classification system for sustainable activities, i.e. an EU taxonomy.
Regulation (EU) 2020/852 (the ‘Taxonomy Regulation’) was published in the Official Journal of the European Union on 22 June 2020 and entered into force on 12 July 2020. It aims to define environmentally sustainable activities. The Taxonomy Regulation is an important piece of legislation for enabling and scaling up sustainable investment and thus implementing the European Green Deal, including an economy that works for people and ensures a just transition that creates employment and leaves nobody behind. Notably, by providing companies, investors and policymakers with the definitions of which economic activities can be considered as environmentally sustainable, it is expected to help shift investments where they are most needed.
The Taxonomy Regulation applies to financial market participants that offer financial products, financial and nonfinancial undertakings within the scope of Directive 2014/95/EU (the Non-Financial Reporting Directive – ‘NFRD’). It also applies to Member States and the EU in the context of introducing national and EU-level requirements regarding financial market participants or to issuers for the purpose of labelling financial products or corporate bonds that are marketed as environmentally sustainable.
The Taxonomy Regulation identifies environmentally sustainable activities based on technical screening criteria set out in the Commission’s delegated acts developed under this Regulation. The first delegated act concerning the technical screening criteria for economic activities with significant contribution to climate change mitigation and adaptation (the ‘Climate Delegated Act’) was adopted on 21 April 2021. Another delegated act concerning the technical screening criteria for the remaining four environmental objectives (‘the Environmental Delegated Act’) will be developed and adopted later.
Article 8(1) of the Taxonomy Regulation provides that certain large undertakings that are required to publish nonfinancial information under the NFRD should disclose information to the public on how and to what extent their activities are associated with environmentally sustainable economic activities as defined under the EU Taxonomy legislation. Following the review of the NFRD by the Corporate Sustainability Reporting Directive (‘CSRD’), the scope of undertakings covered by Article 8 of the Taxonomy Regulation would be enlarged.
Article 8(2) specifies the key performance indicators (‘KPIs’) related to turnover, capital expenditure (‘CapEx’) and operational expenditure (‘OpEx’) that non-financial undertakings must disclose, but it does not specify equivalent indicators for financial undertakings, mainly large banks, asset managers, investment firms, insurance and reinsurance undertakings. Article 8(4) of the Taxonomy Regulation requires the Commission to adopt by 1 June 2021 a delegated act to further specify the content, methodology, and presentation of the information to be disclosed by both non-financial and financial undertakings.
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