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    Social Taxonomy Woes

    It seems like yesterday that the EU Platform on Sustainable Finance published their proposal for a social taxonomy. And while at it, they threw in a couple of more draft reports, proposing new extensions to the green taxonomy. Mind you, it all happened in the middle of an extreme-weather-affected, Corona-fatigued European summer, when even the most ardent sustainability nerds were probably away from their desks, taking a well-deserved break. Hands on your hearts, how many of you heard the platform’s call for feedback at the end of July? I bet it drowned in the laughter of your playing kids or the roar of the ocean.

    Alas, the window of opportunity to submit suggestions, objections, or simply wise comments is already closed. The consultation ended just as quickly as it started, leaving the concerned parties little time to peruse the lengthy, rather technical documents.

    Admittedly, the platform is working on a tight schedule. Still, the timing was far from perfect if they were truly looking for some valuable input. And I’m not the only one to think so either. A rather surly feedback letter from the Confederation of Swedish Enterprise (Svenskt Näringsliv) expresses a similar sentiment: “It is […] unfortunate that the period of consultation is set during the main vacation period in Europe, when the possibility for business associations such as ours and other relevant stakeholders to make the warranted thorough analysis is limited.”

    It is, however, not just the timing or the overall consultation process that Svenskt Näringsliv seems unhappy with. Indeed, the organisation’s chief analyst for international and EU affairs, Jonas Berggren, takes an issue with the proposal itself. A blog post titled “Social taxonomy, no thanks!” (in Swedish) leaves little doubt as to his opinion on the matter. His main concern, probably shared by many, is that the growing taxonomy risks turning into an ‘administrative monster’, obstructing sustainable investments instead of serving its purpose to increase them.

    “We strongly support the EU in developing a social taxonomy based on global social and human rights norms and the impact of both products and practices on affected stakeholder groups,” writes a group of NGOs taking a much more positive stance. But then again, they were smart enough to choose a different strategy to tackle the time pressure. Joining efforts, the group consisting of the Business and Human Rights Resource Centre, EIRIS Foundation, the Investor Alliance for Human Rights, ShareAction and its Workforce Disclosure Initiative, and the World Benchmarking Alliance, combines the parties’ feedback to the platform in a single letter. Apparently, at least a few experts in their midst have taken the time to penetrate the proposal’s details with all its complicated horizontal and vertical dimensions[1], and they like it.

    The European Fund and Asset Management Association (EFAMA) is somewhat more nuanced in its response. “Social data is particularly scarce, and asset managers can’t respond to data points that don’t exist,” they state, urging the architects of the social taxonomy to take into consideration the current data availability situation. “We don’t fully understand the interaction between the social taxonomy’s horizontal dimension and the EU sustainable corporate governance proposal,” the experts admit. And if they don’t, who does, you may wonder.

    “We are conceptually supportive of the approach proposed by the Platform,” writes Eurosif in their feedback letter, choosing carefully their words of support. Some scepticism on the horizontal dimension, in particular, shines through the response, nevertheless. “For many sectors, assessing the social impact will involve establishing a hierarchy of sometimes conflicting social dimensions which may inevitably involve some subjectivity,” comment the authors, pointing out that a consensus on the social impact of all economic activities might be unrealistic.

    Let’s hope that the experts at the Platform on Sustainable Finance took a proper breather while others were sweating over their proposals this summer. Whether they expected it or not, there is plenty of feedback to mull over now.

    Image by Gerd Altmann from Pixabay

    [1] Just to remind you, here is an excerpt from the official description. “The suggested structure of a social taxonomy would be both vertical and horizontal, with the vertical dimension focusing on products and services for basic human needs and basic infrastructure. […] Horizontal objectives would be likely to include a combination of entity- and activity-level criteria, crucial for ensuring businesses’ respect and support for human rights as part of the social taxonomy.”

    Julia Axelsson
    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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