31 May 2023

BDB: More capital for more environmental protection?

“Good things take time”. Whether or not this saying (continues to) apply to the EU environmental taxonomy is, at the very least, controversial. Almost a year and half later than originally planned, on 5 April 2023, the European Commission published a draft detailing the technical screening criteria for the remaining four environmental objectives within the taxonomy regulation. Stakeholders such as businesses, financial institutions, associations, NGOs, public bodies and private citizens were able to comment on the draft as part of a four-week long consultation. The Association of German Banks took part in this consultation via their membership in the German Banking Industry Committee (GBIC) and the European Banking Federation (EBF). 

What are the drafts of the European Commission about?

New technical screening criteria for the classification of economic activities

The EU taxonomy is a classification system which establishes a list of environmentally sustainable economic activities. The goal is to support sustainable investments by providing common criteria for use by investors, businesses and policymakers. The taxonomy for the first two climate goals “climate change mitigation” and “climate change adaptation” was published in July 2021. The technical screening criteria for the four remaining goals, that is “sustainable use and protection of water and marine resources,” “transition to a circular economy,” “pollution prevention and control” and “protection and restoration of biodiversity and ecosystems” have not yet been defined.

Now the European Commission is taking action. Suggestions put forward between March and November 2022 by the EU Platform on Sustainable Finance, an independent advisory body to the European Commission, serve as the basis for the drafts. According to a summary published by the German Wirtschaftsprüferkammer, or Chamber of Auditors, the environmental taxonomy now includes criteria for:

• 6 new economic activities for the protection of water and marine resources 
• 21 new economic activities for the transition to a circular economy
• 6 new economic activities for pollution prevention and control
• 2 new economic activities for protecting biological diversity

In addition, the European Commission is adjusting the screening criteria for its climate objectives and adding new activities to the taxonomy: 

• 18 revised and 7 new economic activities for climate change mitigation
• 15 revised and 6 new economic activities for climate change adaptation 

The additional economic activities pertaining to climate are largely focused on several key components for low-carbon modes of transport and electrical devices as well as some transition activities in the transport industry. The fact that aviation and shipping have now been included in the taxonomy has triggered criticism from a variety of different groups. This is because according to the draft, investments in air and marine transport equipped with the latest propulsion technologies could, in the future, be classified as eco-friendly – even if they use fossil fuels.

In general, it should be clear that the technical screening criteria should be scientifically sound, appropriate and ambitious – especially when adding new economic sectors to the taxonomy. It’s the only way for the taxonomy to remain credible....

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