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Taxonomy Regulation 

by Andre Figueiredo, André Figueiredo, Sara Asseiceiro

Published: June, 2020

Submission: July, 2020

 



  1. Introduction and background

The “Action Plan: Financing Sustainable Growth” was published by the European Commission on 8 March 2018 and it established a financing strategy to redirect capital flows towards sustainable investment. Against this background, the European Parliament recently adopted Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 (the “Taxonomy Regulation”).


 


The Taxonomy Regulation is the latest part of a package of legislation in relation to the above-mentioned Action Plan. It is intended to support a sustainable and inclusive economic system, not only from an environmental, but also from a social point of view.


This new Regulation joins Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial services sector and Regulation (EU) 2019/2089 on EU Climate Transition Benchmarks, EUParis-aligned Benchmarks and sustainability-related disclosures for benchmarks.


Rather than establishing a specific definition of f inancial products considered environmentally sustainable, the Taxonomy Regulation seeks to provide companies and investors with a common language (taxonomy) to identify economic activities that can be considered sustainable, by implementing six environmental objectives. The establishment of this unified classification system for environmentally sustainable activities will allow investors to redirect their investments towards more sustainable technologies and businesses. It is also seen as an essential step towards the climate-neutral impact of the European Union by 2050 and the achievement of the Paris Agreement targets for 2030.


In addition to the taxonomy imposed by the Taxonomy Regulation, the Regulation also determines that the conditions under which an economic activity can qualify as contributing substantially to one of the six objectives listed below will be developed gradually, through the establishment of technical screening criteria by the Commission. The application of these criteria will be evaluated at least every three years and, if necessary, the Commission will amend the delegated acts relating to those criteria. To this end, the Commission will draw on the advice of the Platform on Sustainable Finance, established under the Taxonomy Regulation and composed of experts representing both the public and private sectors. The Platform should be consulted, among others, when developing, analysing and reviewing the technical screening criteria.


2. Environmental objectives


The Taxonomy Regulation sets the following six environmental objectives as the basis for assessing whether an economic activity can be environmentally sustainable:


  • Climate change mitigation – contribution to stabilising greenhouse gas concentrations in the atmosphere at a level consistent with the long-term temperature target set in the Paris Agreement, by preventing or reducing greenhouse gas emissions or increasing removals of greenhouse gases, for example, by producing renewable energy;
  • Climate change adaptation – inclusion of adaptation solutions that substantially reduce the risk of negative effects of the current climate and its expected future evolution on that economic activity or on people, nature or assets, in any case without increasing the risk of negative effects on other people, nature or assets;

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