Stockholm (NordSIP) – July has been a busy month so far for anyone involved in sustainable finance. The cornucopia of regulatory documents published by the EU alone is enough to keep us occupied for the rest of the summer, and beyond. Understandably perhaps, the impressive ‘Fit for 55’ package grabs most of the attention. Meanwhile, there are other developments worth noting.
Last week, three new taxonomy proposals were unveiled by the EU Platform on Sustainable Finance in rapid succession. All of them are now awaiting feedback from expert bodies and concerned parties. The proposal for a new social taxonomy was first out to be published.
On July 13th, two more taxonomy proposals, ‘Significantly Harmful’ and ‘No Significant Impact’, saw the light of day. The current EU Green Taxonomy has often been criticised for failing to address all activities that fall outside of the ‘dark green’ category, i.e., those with a ‘Substantial Contribution’ label. Suggesting the two new concepts of ‘Significantly Harmful’ and ‘No Significant Harm’ is, therefore, a welcome complement. Hopefully, it will also encourage a transition away from non-green activities.
Presenting the new proposals at a webinar last Tuesday, the Chair of the EU Platform, Nathan Fabian of PRI, called them “a very important extension to a richer taxonomy”. He then let Nancy Saich of EIB, who is this particular subgroup’s rapporteur, explain the rationale behind the extended guidelines and delve into the details of the proposals.
Saich started by reminding the audience about the main purpose of the Taxonomy. Apart from providing a necessary “inventory” for the future and enabling standardised reporting on environmental fitness, it is also a transition tool, helping investors and companies to set measurable objectives and a clear direction of travel. She then assured everyone that the new extensions are adhering to the same principles as the existing guidelines. They, too, are aiming to be science-based, dynamic and easy to use.
Aided by illustrations reminiscent of a well-stacked set of Lego blocks, the architects behind the extended taxonomy proposals argued eloquently for the importance of defining each block of activities and indicating pathways for transitioning from one category to another. Addressing the ‘significant harm’ category, Paolo Marullo Reedtz, Former Director-General for Markets and Payment Systems at Bank of Italy, pointed out that an extended taxonomy “opens up a wider way of describing transition opportunities by incentivising improvements that do not necessarily meet the ‘substantial contribution’ criteria”.
“Feedback is essential as there are many trade-offs,” reminded Fabian towards the end of the presentation. The window of opportunity to get involved and influence the Platform’s work before the final version goes to the Commission for approval is limited. It is high time to get used to the new acronyms, ‘SH’ and ‘NSI’, and start digging down into the details and their implications.