Stockholm (NordSIP) – This summer, while many Nordic investors were taking a well-deserved break and enjoying their holidays, the EU sustainable finance regulators kept others busy. Among a multitude of initiatives, the EU Green Taxonomy gained a couple of brand new proposed extensions in mid-July, those covering ‘Significantly Harmful’ and ‘No Significant Impact’ activities. Johanna Lundgren Gestlöf (pictured), Head of Sustainability at Swedish pension provider SPP, for one, has, apparently, found the time to pore over the impressive body of new regulatory documents and reflect upon their meaning and implications.
NordSIP catches up with Lundgren Gestlöf just moments after a webinar on the proposed taxonomy extensions organised by the EU Platform on Sustainable Finance, where she, alongside the Platform Rapporteur, Nancy Saich, and Nadine Viel-Lamare from the Swedish Environmental Protection Agency, sheds some welcome light on the proposal.
Lundgren Gestlöf starts by urging us to step back and reflect upon the purpose of the taxonomy. “The framework was created in order to increase the transparency of companies’ activities which affect sustainability so that financial market actors can make better-informed decisions, avoid greenwashing and move capital in a sustainable direction,” she reminds us. “Its purpose was never to tell investors what they are allowed to do or not. The taxonomy is not a list of companies that you can or cannot invest in. It is not a 100% holistic view of sustainability. It does not substitute the need of having ESG analysts – but we need data to do good analysis, and there it provides a solid foundation.”
“I have two very strong opinions about the taxonomy in general,” continues Lundgren Gestlöf. “The problem is, they contradict each other. I think that the taxonomy is both very important and actually not that important at all.” This statement requires some explanation. She means that although the elaborate new classification system is crucial for creating a common science-based language, it is also relatively marginal as a stand-alone initiative. The taxonomy is a valuable tool for catalysing green investments, yet just one among many others in the toolbox.
Lundgren Gestlöf observes that the original taxonomy has stirred much worry among companies, at least here in the Nordics. They fear it will be difficult to attract capital if they cannot prove to be green enough. “I believe the new extensions will help address some of these concerns as they create clarity about the fact that the taxonomy is not black and white (or green and white)”, she says. As such, the extended taxonomy better reflects the complex economic reality, according to her. “A tax advisor will probably not have a significant effect on CO2 emission reductions no matter what, and a high-emitting energy producer will do harm no matter what,” she explains.
“In the report, there is a sentence about a fear of moving away from the ‘positive spirit’ of the green taxonomy,” says Lundgren Gestlöf. “Given the carbon budget we have left, though, I think we need to know about the harmful, no matter how pessimistic it might sound. I believe it is as important to know what is causing significant harm as what has a significant positive impact.”
Another reason the sustainability expert is excited about the new taxonomy extensions is the extra attention to the intermediate transition. “Looking at this from an investor’s point of view, what is important is that we finance the transition towards what is greener, and this new taxonomy opens up for more potential here,” she adds.
Naturally, she has some concerns, too. “There is a risk of making a too complex framework that is hard to understand and get an overview of, and investors and customers might misuse that. Especially when we also include the updates in the MiFID and IDD regulations about customers’ sustainability preferences,” explains Lundgren Gestlöf. “A product with 10% taxonomy alignment – is that good or bad at fulfilling customer preferences? Well, it probably depends on the other 90%,” she adds. She concludes that the taxonomy might not be so user-friendly for the end customers after all. However, she is convinced that it is helpful for financial and ESG analysts and companies within an in-scope industry looking for precise directions.
“I hope investors do not take the easy way out and opt for using the taxonomy data’ off-the-shelf’, simply trying to maximise the numbers,” says Lundgren Gestlöf. She also stresses the importance of putting resources into analysing ESG, as taxonomy data, however helpful as a basis, is of no use without proper analysis. “A single company can do both green activities and close to harmful activities at the same time, for instance. How do we value such an investment vs one that only makes no significant impact,” she adds, posing a rhetorical question.
“We should take our responsibility to use this framework the way it is intended. We should talk to our customers and investee companies about what it means and how we try to create change in the real economy,” concludes Lundgren Gestlöf.
Image courtesy of SPP
