The Commission is also consulting on proposed targeted amendments to the Taxonomy Climate Delegated Act and on the Taxonomy Disclosures Delegated Act.

By Paul A. Davies, Michael D. Green, and James Bee

On 5 April 2023 the European Commission opened a consultation on its proposal for four additional environmental objectives under the EU Taxonomy Regulation[1] (the Taxonomy), including: (i) sustainable use and protection of water and marine resources; (ii) transition to a circular economy; (iii) pollution prevention and control; and (iv) protection and restoration of biodiversity and ecosystems.

The Commission is seeking feedback on technical screening criteria (TSC) for economic activities that may substantially contribute to one or more of those four environmental objectives. The TSC do not only identify the technical requirements that an activity must meet to be considered to make a substantial contribution to one of these areas, they also specify the conditions by which the activities can be considered to not do any significant harm to the remaining areas.

The Commission has already adopted TSC related to the economic activities of two other environmental objectives: climate change mitigation and climate change adaptation.

The Commission is also proposing amendments to the Taxonomy Climate Delegated Act, introducing additional activities that may be considered to substantially contribute to climate change mitigation or climate change adaptation, as well as the Taxonomy Disclosures Delegated Act.

Background

The Taxonomy entered into force in 2020, with the objective to help channel capital in the EU towards sustainable economic activities, as part of the overarching aims of the European Green Deal[2]. The Taxonomy provides definitions of economic activities that can be considered environmentally sustainable, and therefore is expected to help direct investments in certain economic sectors that the EU believes are required for a fair green transition.

The Taxonomy seeks to clarify economic activities as “sustainable” based on whether they meet certain criteria, as defined by the EU. For an activity to be Taxonomy-aligned, and therefore qualify as sustainable, it must meet the following four criteria:

  1. Contribute substantially to one or more of the six environmental objectives set out in the Taxonomy
  2. Do no significant harm (DNSH) to any of the remaining objectives
  3. Comply with the minimum social safeguards set out in the Taxonomy
  4. Comply with TSC, which outline technical standards that activities must meet to demonstrate that they make a substantial contribution to, and do not significantly harm, the environmental objectives set out by the Commission through delegated acts

Consultation

The consultation focuses on economic activities and sectors “identified as having the biggest potential to make a substantial contribution to one or more of the four environmental objectives”, which are manufacturing, water supply, sewerage, waste management and remediation, construction, civil engineering, disaster risk management, information and communication, and environmental protection and restoration and accommodation activities. For certain other sectors and activities such as agriculture and fishing, the Commission notes that a further assessment is required.

The proposal builds on recommendations of the Platform on Sustainable Finance, a Commission-led group of private and public sector stakeholders that advises on TSC for the Taxonomy objectives.

The public consultation period is open until 3 May 2023, and feedback can be directed here.

Latham & Watkins will continue to monitor developments in relation to the Taxonomy.

Endnotes

[1] Regulation (EU) 2020/852.

[2] For further details on the European Green Deal, see this Latham blog post: EU Launches €1 Trillion European Green Deal Investment Plan.