EU Taxonomy - what is it and what does it entail?
Climate change and its irreversible effects have become a reality. We live in a time when the life of our planet is threatened as never before. Therefore, we cannot afford to wait for its death with folded hands. These are times when we must start acting hard to prevent annihilation. Right now, right now, to the max....
And we need to start with the biggest ones, i.e., states, institutions, or organizations, because they are the ones with the most clout, the most power and the strongest voice. Fortunately, they have finally woken up from their lethargy and started to act. Some out of altruistic motives, and others because they have to. Today, motives are receding into the background. What matters is actual action. Recently, regulations have been springing up like mushrooms, aiming to slow down and maybe even stop environmental degradation. A few years ago there were various initiatives and actions in the international arena, i.e. the Paris Agreement, Agenda 2030 or the European Green Deal. They set the pace and raised the importance of climate issues and environmental action.
What is the EU taxonomy?
Among the most important and urgent tasks identified for implementation under the Sustainable Growth Financing Action Plan was the establishment of a system of unified classification of actions for sustainable development, the so-called EU Taxonomy. Its general framework was outlined in the EU Taxonomy, adopted in June 2020. Regulation (EU) 2020/852 of the European Parliament and the Council. The EU Taxonomy is a tool to help businesses make informed investment decisions toward more sustainable economic activities. Among other things, it aims to provide clarity and a common understanding of what activities can be considered "sustainable." The introduction of the EU taxonomy, in addition to unifying terms, is also intended to combat the phenomenon of "greenwashing." Ecoscience, as greenwashing can also be referred to, deceives us - consumers and investors - with false assurances from producers about the environmental friendliness of products or services. The EU taxonomy is designed to prevent this. At the same time, by establishing clear eligibility criteria, it is also supposed to be the key to directing the flow of public and private capital toward sustainable investments, so that Europe can achieve carbon neutrality by 2050, according to the European Green Deal. According to the EU Taxonomy Regulation, for an economic activity to qualify as sustainable, it will have to meet the following requirements:
provide a significant contribution to at least one of six environmental goals: o climate change mitigation, o adaptation to climate change, o sustainable use and protection of water and marine resources, o transition to a closed-loop economy, o pollution prevention and control, o protection and restoration of biodiversity and ecosystems;
not cause significant harm to any of the above environmental goals;
comply with technical evaluation criteria;
provide a minimum of social security and governance guarantees.
Who and when must use the EU Taxonomy?
The classification system is aimed directly at EU member states, financial market participants offering financial products (e.g., stocks, bonds) and financial and non-financial companies subject to non-financial reporting obligations. They are obliged to comply with the new requirements and report their activities based on the criteria of the EU taxonomy from the beginning of 2022. The EU taxonomy can also be used voluntarily by other entrepreneurs, e.g. for the purpose of obtaining funding for sustainable activities under European funds. The taxonomy is a list of environmentally sustainable business activities with detailed eligibility criteria, thresholds and indicators, which are described in detail in supplementary delegated acts. According to them, companies subject to non-financial reporting will have to disclose how and to what extent their activities comply with the activities considered environmentally sustainable in the EU taxonomy. The European Union is placing an increasingly strong emphasis on the sustainability aspect of business. Given the multidimensionality and pace of implementation of the sustainable financing initiative, as well as its practical dimension in the form of financing opportunities for specific investments, it is already worth identifying the impact of the aforementioned regulations on business operations and steering them in a more sustainable direction.