PART A: Explanation of the taxonomy approach
In line with the Commission's legislative proposals of May 20181, the European Commission has set up a Technical Expert Group on Sustainable Finance (TEG) to assist it in developing;
• an EU classification system – the so-called taxonomy – to determine whether an economic activity is environmentally sustainable;
• an EU Green Bond Standard;
• benchmarks for low-carbon investment strategies; and
• guidance to improve corporate disclosure of climate-related information. The Taxonomy is the focus of this invitation for feedback and workshops. Outreach plans from other working groups of the TEG can be found online.
The TEG commenced its work in July 2018. Its 35 members from civil society, academia, business and the finance sector, as well as ten additional members and observers from EU and international public bodies work both through formal plenaries and sub group meetings for each work stream. The members of the TEG and the Commission recognise the importance of transparency and feedback throughout this process.
Members of the current TEG have been appointed as representatives of their organisations (type C members3), as individuals appointed in a personal capacity (type A or type B members), or as representatives of European entities (type E members).
The TEG will operate until June 2019, with a possible extension until year-end 2019.
2. Purpose of the Taxonomy
In order to meet the EU energy and climate targets for 2030 and to transition to a low carbon- and more environmentally sustainable economic model, the EU faces an investment gap of €150177bn4+ of additional investment per year to 2030. The European Commission’s long-term vision ‘A Planet for all’ indicates that a transition to a net-zero greenhouse gas economy in 2050 will require annual average investments in the range of €1.19 to 1.48 trillion from 2031 during 2050. This means considerable additional investments compared to the baseline, in the range of € 175 to 290 billion a year (including investments needed to replace vehicles).
Private business and households will be responsible for the vast majority of these investments The financial sector has a key role to play to help re-orienting flows in supporting the transition towards net-zero emissions. Attracting capital to the economic activities that have the substantial contribution to climate mitigation is therefore key.
However, there are not yet commonly agreed principles and metrics for assessing if economic activities can be considered environmentally sustainable for investment purposes. This is one factor which hampers redirection of capital towards more sustainable economic activities and hence also the possibility to close the above-mentioned investment gaps.
Financial institutions presently identify sustainable economic activities and sustainable investable assets in-house and on a voluntary basis. This is time consuming and costly, and the result is that different financial institutions use different taxonomies. Consequently, investors often find it too burdensome to check and compare different information for different financial products. This creates uncertainty and discouragement for investors and hampers the transition towards a sustainable economy.
An EU taxonomy would fill these gaps, as it would inter alia:
create a uniform and harmonised classification system, which determines the activities that can be regarded as environmentally sustainable for investment purposes across the EU;
address and avoid further market fragmentation and barriers to cross-border capital flows as currently some Member States apply different taxonomies;
provide all market participants and consumers with a common understanding and a common language of which economic activities can unambiguously be considered environmentally sustainable/green;
provide appropriate signals and more certainty to economic actors by creating a common understanding and single system of classification while avoiding market fragmentation;
protect private investors by avoiding risks of green-washing (i.e. preventing that marketing is used to promote the perception that an organization's products, aims or policies are environmentally-friendly when they are in fact not);
provide the basis for further policy action in the area of sustainable finance, including standards, labels, and any potential changes to prudential rules.
Full report is available at: