Regulation (EU) 2020/852 is a piece of European Union (EU) legislation that was adopted in June 2020. It is also known as the “Taxonomy Regulation” and provides a framework for sustainable investment in the EU.
Taxonomy Regulation and the Delegated Acts define environmentally sustainable economic activities and establish a system of classification.
The goals of the Taxonomy Regulation
The first goal of the Taxonomy Regulation is to provide a common definition of what constitutes an environmentally sustainable economic activity. The regulation defines environmentally sustainable activities as those that make a substantial contribution to one or more of the six environmental objectives set out in the regulation: climate change mitigation, climate change adaptation, the protection and restoration of biodiversity and ecosystems, the transition to a circular economy, the reduction of the use of hazardous substances, and the improvement of water quality.
The second goal of the Taxonomy Regulation is to increase transparency and consistency in the classification of environmentally sustainable activities. This is achieved by establishing a governance framework, including a Taxonomy Forum and a Technical Expert Group, to guide and support stakeholders in implementing the taxonomy. The Taxonomy Forum will provide a platform for stakeholders to engage with one another and with the Technical Expert Group on the implementation of the taxonomy. The Technical Expert Group will be responsible for providing technical advice and guidance on implementing the taxonomy, including developing technical screening criteria for environmental sustainability.
The third goal of the Taxonomy Regulation is to promote investment in environmentally sustainable activities. By establishing a common definition of what constitutes an environmentally sustainable activity, the regulation aims to provide investors with greater certainty and clarity when it comes to investing in such activities. This will help to attract more investment into sustainable projects and activities, and will support the transition to a more sustainable and resilient economy.
The fourth goal of the Taxonomy Regulation is to support the implementation of the EU’s sustainable finance strategy. The regulation is one of the key components of the EU’s sustainable finance strategy, which aims to redirect financial flows towards environmentally sustainable activities and to encourage the development of sustainable financial products and services. By establishing a common definition of environmentally sustainable activities and providing guidance on the classification of such activities, the Taxonomy Regulation will support the implementation of the EU’s sustainable finance strategy.
The fifth goal of the Taxonomy Regulation is to promote innovation and competitiveness in the field of sustainable finance. By establishing a common framework for the classification of environmentally sustainable activities, the regulation aims to encourage innovation in the development of sustainable financial products and services. This will help to increase competition in the sustainable finance sector, which will in turn lead to lower costs for consumers and a more efficient allocation of resources.
Finally, the sixth goal of the Taxonomy Regulation is to support the transition to a more sustainable and resilient economy. By establishing a common framework for the classification of environmentally sustainable activities, the regulation aims to facilitate the transition to a more sustainable and resilient economy. This will help to reduce the environmental impact of economic activities, and to build resilience against the impacts of environmental challenges such as climate change and environmental degradation.
The Taxonomy Regulation aims to provide clarity and transparency for investors and consumers by helping them identify investments that meet certain sustainability criteria. It also aims to support the transition to a low-carbon, climate-resilient, and circular economy by providing clear and consistent definitions for environmentally sustainable activities.
The six environmental objectives
One of the key provisions of the Taxonomy Regulation is the definition of six environmental objectives that must be met by economic activities in order to be considered environmentally sustainable. These six environmental objectives are:
- Climate change mitigation: This objective aims to reduce greenhouse gas emissions and limit the average global temperature increase to well below 2°C above pre-industrial levels.
- Climate change adaptation: This objective aims to help society and the economy adapt to the impacts of climate change, such as sea-level rise, extreme weather events, and changes in precipitation patterns.
- Sustainable use and protection of water and marine resources: This objective aims to ensure the sustainable use and protection of water and marine resources, including reducing water pollution and conserving marine biodiversity.
- Transition to a circular economy: This objective aims to promote the transition to a circular economy, where resources are kept in use for as long as possible and waste is minimized.
- Prevention of pollution and protection of the environment: This objective aims to prevent pollution and protect the environment, including reducing the release of harmful chemicals and ensuring the safe disposal of waste.
- Protection and restoration of biodiversity and ecosystems: This objective aims to protect and restore biodiversity and ecosystems, including preserving natural habitats, protecting endangered species, and restoring degraded ecosystems.
The Taxonomy Regulation requires that economic activities that contribute to at least one of these six environmental objectives are considered environmentally sustainable. The regulation also establishes a Technical Expert Group (TEG) to provide technical advice and develop guidelines for the implementation of the regulation. The TEG is responsible for developing methodologies for assessing economic activities’ sustainability and providing a common framework for investors, asset managers, and companies to understand and assess the sustainability of their investments and activities.
The governance framework of the Taxonomy Regulation
The governance framework established by the Taxonomy Regulation is designed to guide and support stakeholders in implementing the taxonomy, ensuring the consistent and effective application of the regulation across the European Union (EU). The governance framework includes two key components: the Taxonomy Forum and the Technical Expert Group.
The Taxonomy Forum is a multi-stakeholder platform established by the European Commission to facilitate cooperation and exchange of information among stakeholders on the implementation of the taxonomy. The Taxonomy Forum is composed of representatives from the EU Member States, the European Parliament, the European Economic and Social Committee, the Committee of the Regions, and other relevant stakeholders such as business and civil society organizations. The main function of the Taxonomy Forum is to provide a platform for stakeholders to discuss and exchange views on the implementation and development of the taxonomy and to provide advice and recommendations to the European Commission.
The Technical Expert Group, on the other hand, is a body of experts appointed by the European Commission to provide technical advice and support on the implementation of the taxonomy. The Technical Expert Group is responsible for providing advice on the development of technical screening criteria, guidance and tools to support the implementation of the taxonomy and the assessment of sustainable economic activities. The Technical Expert Group is composed of experts with a wide range of expertise and experience in sustainability, environmental protection, and the financial sector.
The governance framework, including the Taxonomy Forum and the Technical Expert Group, plays an important role in ensuring the consistent and effective implementation of the taxonomy, providing guidance and support to stakeholders, and ensuring that the taxonomy remains relevant and up-to-date. By providing a platform for cooperation and exchange of information, the governance framework helps to ensure that the taxonomy supports sustainable investment and promotes the transition towards a green and sustainable economy.
The Delegated Acts under Taxonomy Regulation
Includes delegated acts as a means to provide further specifications and details on the implementation of the regulation. Ask Ramon if worthy!
The Delegated Acts under the Taxonomy Regulation cover a range of topics, including:
- Technical screening criteria: This act sets out the criteria and methodology to determine whether an economic activity contributes significantly to achieving at least one environmental objective of the Taxonomy Regulation.
- The List of Environmental Objectives: This act provides further details on the six environmental objectives specified in the Taxonomy Regulation and sets out the sub-objectives to determine whether an economic activity qualifies as environmentally sustainable.
- Transparency and disclosure: This act provides further specifications on the information that must be disclosed by entities in order to demonstrate that their activities are environmentally sustainable and aligned with the Taxonomy Regulation.
- The role of certification systems and standards in implementing the Taxonomy Regulation: This act sets out the requirements for certification systems and standards to be recognized and used to demonstrate compliance with the Taxonomy Regulation.
- Reporting requirements: This act sets out the reporting requirements for entities to demonstrate their compliance with the Taxonomy Regulation, including the format and content of the reports to be submitted to the European Commission.
The Delegated Acts under the Taxonomy Regulation are an important part of the governance framework established to support the implementation of the regulation. They provide stakeholders with the necessary guidance and specifications to ensure that their activities align with the Taxonomy Regulation’s environmental objectives and contribute to the transition towards a more sustainable and environmentally friendly economy.