EFAMA: EU needs a usable, investor-centric and globally relevant social taxonomy
10 September 2021
“A usable, investor-centric and globally relevant social taxonomy would rebalance the EU´s sustainable finance strategy and grasp the full potential of ESG investing...."
EFAMA responded to a public consultation of the Platform on Sustainable Finance on a social taxonomy.
Tanguy van de Werve, EFAMA Director General, commented: “A
usable, investor-centric and globally relevant social taxonomy would
rebalance the EU´s sustainable finance strategy and grasp the full
potential of ESG investing. The ongoing Covid 19 pandemic demonstrates
that investments in projects addressing social needs cannot be
neglected, and the recent surge in social impact funds with a 165%[1] net asset growth rate since the end of 2018, reveals a strong market appetite.”
Dominik Hatiar, EFAMA Regulatory Policy Advisor, added: “Although
social risks and opportunities are more difficult to quantify, there is
currently a clear regulatory gap, as social funds are unable to
demonstrate taxonomy-alignment and can thus not be distributed along this channel of clients´ sustainability preferences under MiFID II. To avoid duplicating some of the reporting challenges
created with the environmental taxonomy, the social taxonomy needs to
be aligned with the current social data availability and will require investee company reporting ahead of investor disclosures.”
EFAMA provided the following four policy recommendations for the social taxonomy:
- The social taxonomy should be usable by investee companies and financial market participants.
Social data is particularly scarce, and asset managers cannot respond
to data points that do not exist. Therefore, the data availability
situation must be considered first. The Platform should, for example,
identify what legislative instrument would govern the reporting of
companies against the social taxonomy. Harmonising the social taxonomy
with the existing SFDR principal adverse impacts indicators, would also
enhance the usability of the taxonomy.
- Well-defined
and universal standards and metrics for social objectives are missing
due to their dependency on national context and legislation in social
affairs. We believe it is essential to base the social taxonomy on globally recognised principles
embedded in international treaties and standards, such as the UN
Guiding Principles on Business and Human Rights or the OECD Guidelines
for Multinational Enterprises. This would contribute to universally
recognisable standards for social investing and maximise the potential
for redirecting capital flows also in emerging economies. In this
context, the Platform could consider relative thresholds differentiated
by the economic development of a country.
- It is currently premature to start categorising activities eligible under the social taxonomy. As a first step, the policy objectives of a social taxonomy need to be defined. A key question is whether the social taxonomy should build upon the environmental taxonomy in promoting the ‘just
transition‘-concept - addressing the social challenges in
carbon-intensive industries and regions - or have a broader goal, such
as fostering adequate living standards. Furthermore, the geographical
focus (EU vs. global level) of the social taxonomy must be defined.
- As a first step, we prefer a standalone social taxonomy (Model 1)
as it does not require a review of the environmental taxonomy, which
could result in a delayed application. Moreover, applying the social
taxonomy in combination with the environmental taxonomy (model 2) would
further narrow down the scope of an already small investable universe
of taxonomy-aligned activities. However, in the long-term, once both
taxonomies are fully established in practice, Model 2 could be
considered to avoid conflicts where an activity qualifying as
taxonomy-aligned from an environmental perspective would undermine social objectives, and vice-versa.
EFAMA
© EFAMA - European Fund and Asset Management Association
