‘Taxo 4’ Is Out and Needs Your Feedback

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    Stockholm (NordSIP) – The upcoming Easter holidays just got slightly more interesting, and busier, for sustainable finance professionals following the developments around the EU’s groundbreaking Taxonomy regulation. On 5 April, the European Commission launched a public consultation on a new set of technical screening criteria (TSC) for economic activities substantially contributing to the remaining four environmental objectives, aka ‘Taxo 4’:

    • sustainable use and protection of water and marine resources,
    • transition to a circular economy,
    • pollution prevention and control and protection
    • restoration of biodiversity and ecosystems.

    Given the vast implications of the classification system for the two objectives currently covered by the taxonomy, i.e., climate change mitigation and climate change adaptation, the importance of defining the criteria for the remaining four ones are not to be underestimated.

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    There should be few surprises in the Commission’s proposal as, according to the announcement, the new criteria closely follow the recommendations of the Platform on Sustainable Finance (PSF). These were made available already back in March 2022. The PSF also published a detailed and highly technical supplementary report in November last year, further refining their recommendations.

    Some of the topics covered by the experts’ recommendations have proven controversial, however. One such contentious area is the proposed TSC for the biodiversity and ecosystem objective and how they are applied to the forestry and logging activity. At this point, the Commission has chosen not to include the TSC for forestry, agriculture and fishing sectors, pending “further assessment and calibration”.

    There are, in other words, plenty of details to dig down into for financial markets participants who intend to respond to the Commission’s call for feedback. To make things even more complicated, they are also consulting on proposed targeted amendments to the Taxonomy Climate Delegated Act, covering the environmental objectives of climate change mitigation and adaptation, and on the Disclosures Delegated Act.

    Usability is a clear priority for the architects of the EU Taxonomy these days. To help financial professional navigate this increasingly complex framework, three new tools have been made available:

    • Taxonomy Navigator, a user-friendly website that offers a series of online tools to help users better understand the EU Taxonomy in a simple and practical manner, ultimately facilitating its implementation and supporting companies in their reporting obligations;
    • Taxonomy Calculator that aids the calculation of KPIs and compiling reporting templates; and
    • FAQ repository.

    The regulators appear to be working on a tight timeline. Adoption of the delegated act is planned for the end of June already. Eligibility according to the amended reporting requirements for Taxo 4 is expected to apply from 1 January 2024. The following year, alignment with the requirements for the financial year 2024 will need to be reported as well.

    Given that the draft act is open for feedback for only four weeks, until 3 May (midnight Brussels time), financial actors are encouraged to respond to the Commission’s call for contributions promptly.

    Go ahead and have your say on this crucial addition to the extensive EU Taxonomy framework!

    Image courtesy of Gerd Altmann from Pixabay
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