Taxonomy Regulation

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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.

ESMA and the EBA advise on KPIs for transparency on institutions’ environmentally sustainable activities, and the EBA consults on prudential disclosures of ESG risks under the CRR.

By Nicola Higgs, Suzana Sava-Montanari, and Axel Schiemann

On 26 February 2021, both the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) issued guidance on Article 8 of the EU Taxonomy Regulation. Firms in scope of the EU Taxonomy Regulation now have all the relevant guidance to start planning their disclosures on how and to what extent their activities are associated with economic activities that qualify as environmentally sustainable under the EU Taxonomy Regulation.

The guidance elaborates on the Key Performance Indicators (KPIs) that institutions should disclose, the scope and methodology for the calculation of those KPIs, and the qualitative information that institutions should provide.

The main KPI proposed is the Green Asset Ratio (GAR), which identifies institutions’ asset financing activities that are environmentally sustainable according to the EU Taxonomy Regulation, including activities consistent with the goals of the European Green Deal and the Paris Agreement. Information on the GAR is supplemented by other KPIs that provide information on the taxonomy-alignment of institutions’ services other than lending and investing. The EBA has integrated proportionality measures that should facilitate institutions’ disclosures, including transitional periods where disclosures in terms of estimates and proxies are allowed.

The delay may complicate the regulatory landscape for sustainable finance as the EU moves toward a standardized classification system. 

By Paul A. Davies, Nicola Higgs, and Michael D. Green

The UK government (government) has delayed a decision on whether it will adopt the EU’s taxonomy of sustainable finance activities (the Taxonomy) as the UK approaches the end of its post-Brexit transition period.

The European Commission’s Technical Expert Group (TEG) on Sustainable Finance, which developed the Taxonomy, published its final report on the document in March 2020. The resulting Taxonomy follows from consultations with more than 200 industry experts and scientists