In March 2018, the European Commission presented its proposal for an EU green taxonomy and the regulation “on the establishment of a framework to facilitate sustainable investment” was finally adopted last year, on 18 June. The objective of this regulation is to harmonise the definition of « green economic activities” and set up common criteria and language to this end. Indeed, it defines to what extent an economic activity can be considered as environmentally sustainable, for investment purposes.

Though, ever since the Commission presented the European Green Deal in December 2019, the taxonomy took a whole other dimension. It could, for example, influence the forthcoming revisions of the directives on renewables and on energy efficiency. Further, the Commission announced a “renewed sustainable finance strategy” to make sure that the financial system supports businesses’ transition towards sustainability in the context of the EU’s recovery from the COVID-19 crisis.

The Commission recognised that more has to be done as regards transition financing for companies and economic actors that work on improving their impact on the environment. Therefore, the Commission asked its Platform for Sustainable Finance, an expert group set up by the regulation, to provide advice on transition financing.
The expert group’s report, published on 19 March, comprises three categories of recommendations to “maximise inclusiveness but maintain the integrity of the current taxonomy framework; on opportunities to develop the future taxonomy framework; and, to utilise other policies and tools to support transition finance”.

Anyhow, the Commission’s priority has to be the establishment of technical screening criteria – specifying under which conditions a particular economic activity contributes to the environmental objectives (1) and whether the economic activity causes significant harm to one or more of those objectives (2). Thus, the Commission needs to adopt delegated acts by 31 December 2021 to allow for an application of the criteria from 1 January 2023.
Moreover, a delegated act setting out the content, presentation, and methodologies for complying with disclosure requirements (3) must be adopted by 1 June 2021 to allow for an application from January 2022.

The first delegated act on climate mitigation and adaptation is finally expected for the second half of April. It seems the Commission still has to find a political acceptability, in particular as regards debates on the considerations of gas, hydrogen or nuclear. Luxembourg for instance, finds a taxonomy which includes nuclear power inacceptable while other countries want to keep it for strategic reasons.
Following the adoption by the Commission, the European Parliament and Council will have two months to either approve or reject the proposal. Knowing that investments will have to take into account the specific nature of each activity in terms of sustainability from 2022 onwards, the timing seems extremely challenging for all relevant actors to prepare the application of the new rules.

Finally, the Commission will publish the new “package” at the same time in April, including its proposal for the revision of the non-financial reporting directive (NFRD) 6 and a Communication on the role of the taxonomy in the sustainable finance. It should clarify the importance of transitional activities and how the taxonomy will support transition finance. Certainly, transition finance will be key in the renewed sustainable finance strategy. Building on the 2018 Action Plan on financing sustainable growth, the new strategy should now empower companies to transition to sustainable activities.

Angela Lo Mauro
Conseillère affaires européennes auprès de la FEDIL