The Taxonomy: a Tesla in the Making

    It has been a busy and sweaty week up here in the Nordics. Temperatures are running high outside as well as in the dark corridors of the Swedish parliament. And, between queuing for a different kind of ‘Snaps’ at Systembolaget and procuring the obligatory pickled herring and local strawberries ahead of the traditional Midsummer celebration, time is simply not enough these last few days.

    Surely, though, it has been an even sweatier week for the taxonomy-busy EU Commission and its advisory body, the Platform on Sustainable Finance. Just days before adopting its level 2 Delegated Act for Article 8 on June 30th, there are plenty of details to figure out. So many eyes are upon those poor souls, too, while they struggle to finalise the rules for exactly what taxonomy-related information companies will have to disclose going forward. Even foreigners are watching closely; from South Africa to Columbia, regulators hope for some help with their own homework.

    Yet, somehow, the Platform on Sustainable Finance has found the time to organise a series of webinar sessions on the practical benefits of EU taxonomy. Tuning into the first session earlier this week, I can’t help but admire the ability of the moderator to make a relatively dry topic sound fresh and exciting. For all I know, the dialogue between Sean Kidney of Climate Bonds and Helena Vines Fiestas of Spain’s National Securities Market Commission and EU Platform Co-Rapporteur of Usability & Data Workgroup might be a well-rehearsed and scripted one. Yet the impression they give is that the knowledgeable insider Vines Fiestas[1] rewards the moderator’s questions with quite a few aha moments.

    Feigning ignorance to prompt clear and exhaustive explanations is an old trick of the trade, as any journalist would know. Kidney is a real expert at this skill and I, for one, feel grateful for all his digging and prodding, as well as the timely summaries and vivid similes guiding us throughout the conversation.

    To start with, the duo provides us with a helpful image of the taxonomy as a shopping list, a list of necessary activities to secure an environmentally sustainable future. They also imprint the importance of letting the scientists, rather than the politicians, write that list. Yes, there will be wheeling and dealing along the way to make the venture politically feasible, but at least the intention is for the whole thing to stand on soundly scientific grounds. Controversies aside, and as in any democratic process, there will be many of those, it does seem like a noble ambition.

    Then they discuss the revolutionary move of making sustainable transition investment plans taxonomy eligible. Capex- or Opex-alignment targets might be just what is needed to redirect transition capital and take standardised forward-looking sustainability data to the next level. Modelling the mechanism on the established green-bonds market is a genius move, too. From transparency and disclosure rules to measurement and third-party verification, it has been done successfully for years.

    I have to admit that, occasionally, I get lost in the details. Like the fact that articles 5 and 6 of the Corporate Sustainability Reporting initiative (formerly known as the Non-Financial Reporting Directive) correspond to articles 8 and 9 of the Sustainable Finance Disclosures Regulation. Are you still following?

    But then, a helpful Sean Kidney is there to remind me that things always look complicated during the design phase. Think of Tesla, he encourages us. Surely it, too, was all wires and loose screws at some point. Now that all its details have been polished, though, you only need to press a button for it to roll forward, silently and elegantly, into the future.

    God speed!

    Image courtesy of Eduardo Arcos on Unsplash

    [1] Helena Vines Fiestas has been passionate about the taxonomy for a long time, even before officially joining the ranks of the regulators. Check out her convincing arguments while working for BNP Paribas Asset Management.

    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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