The Taxonomy Regulation will introduce a complex classification system of sustainable activities based on contributions to environmental objectives and technical criteria, as well as wider social and sustainability factors.
It also recognises transition and enabling activities. The Taxonomy Regulation will not only apply to sustainable financial products, but also stipulates mandatory disclaimers for mainstream fund and pension products that are not using the Taxonomy as well as reporting requirements for large firms already subject to the Non-Financial Reporting Directive.
ICMA, a member of the Commission’s Technical Expert Group (TEG) on Sustainable Finance, has produced a briefing note summarising the main provisions of the Taxonomy Regulation, including the proposed classification framework, which will become a necessary reference for future sustainable financial products when they are marketed or when they are being defined by Member States or the European Union.
The Taxonomy Regulation sets out six environmental objectives (i) Climate Change Mitigation, (ii) Climate Change Adaptation, (iii) Sustainable Use and Protection of Water and Marine Resources, (iv) Transition to a Circular Economy, (v) Pollution Prevention and Control and (vi) Protection and Restoration of Biodiversity and Ecosystems. It also includes four requirements that economic activities need to comply with in order to qualify which are that (i) they provide a substantial contribution to at least one of the six environmental objectives above, (ii) “No significant harm” is caused to any of the other environmental objectives, (iii) compliance with robust and science-based technical screening criteria, and (iv) compliance with minimum social and governance safeguards.
Full briefing note
© ICMA
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