Platform on Sustainable Finance Offers More Advice

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    Stockholm (NordSIP) – The EU Platform on Sustainable Finance (PSF), the body of experts tasked with assisting the European Commission in developing the Taxonomy and preparing the delegated acts to support the implementation of the rules, continues to persevere in its efforts, despite some controversy surrounding the uptake of its advice. On 11 October, PSF submitted another two key deliveries, Recommendations on Data and Usability of the EU Taxonomy and a Final Report on Minimum (Social) Safeguards.

    The lengthy and detailed documents are bound to keep market participants busy for weeks. Meanwhile, NordSIP brings you a few highlights to get you started.

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    Making the Taxonomy more usable

    To come up with their Recommendations on Data and Usability of the EU Taxonomy, PSF has consulted with user groups, industry associations, practitioner groups, as well as with Platform members and observers. They start by systematically identifying a complete list of Taxonomy users and uses, then zoom in on the key challenges these users face when implementing the rules. Finally, the report outlines potential solutions to the most serious usability challenges.

    There are hardly any surprises regarding the main issues that PSF identifies. According to the report, Taxonomy usability challenges can be grouped into the following themes:

    • Misalignment between the sustainable finance reporting requirements across the regulatory framework, including differing definitions of ‘sustainable investment’, ‘do no significant harm’ (DNSH), ‘good governance’ and risk approaches;
    • Sequencing issues across the reporting framework;
    • Regulatory overload;
    • Interpretive issues; and
    • Regulatory and data gaps.

    To address these concerns, PSF has assembled a long list of recommendations. Among those with high priority are that the European Commission should ensure consistency in reporting obligations amongst user groups as well as between the definitions across the regulatory framework. The experts also reinforce their recommendation that where estimates are used, they should comply with the precautionary principle. To mitigate the interpretative and gap issues mentioned earlier, the report offers plenty of tips on specific parts of the regulation and its annexes that need to be clarified further.

    Social safeguards matter

    The second report, released in October, explores the links between minimum safeguards and the EU legislation, focusing on the Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD), and the upcoming Corporate Sustainability Due Diligence Directive (CSDDD).

    PSF identifies four core topics for which compliance with minimum safeguards should be defined, including human rights, bribery & corruption, taxation, and fair competition. As regulation of human rights due diligence and sustainability reporting is not yet fully finalised, there remains some uncertainty surrounding their implementation. The solution that PSF proposes in the report is to build the requirements for minimum safeguards compliance on international standards, provide independent sources of information, and illustrate potential non-compliance with minimum safeguards, with the help of examples.

    Several specific recommendations are provided. According to PSF, inadequate or non-existent corporate due diligence processes on human rights, including labour rights, bribery, taxation, and fair competition, should be considered a sign of non-compliance with minimum safeguards, and so should any liability in respect of breaches of any of these topics. The lack of collaboration with a National Contact Point or refusal to respond to allegations by the Business and Human Rights Resource Centre are other clear examples of non-compliance, according to the report.

    Additionally, PSF offers some advice on project finance, SME financing, and green bonds, as well as on how to assess sub-sovereign compliance with minimum safeguards.

    Image courtesy of AbsolutVision on Unsplash
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