The EU taxonomy is a classification system, establishing a list of environmentally sustainable economic activities. It could play an important role in helping the EU scale up sustainable investment and implement the European Green Deal. The EU taxonomy could provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. This way, it should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.
On June 22, 2020, the Taxonomy Regulation was published in the Official Journal of the European Union and went into effect on July 12, 2020.
The Taxonomy Regulation establishes six environmental objectives;
Why was the EU taxonomy created?
The European Union (EU) laid the stage for more sustainable investments in sectors like renewable energy, biodiversity, and the circular economy by passing the Green Deal in 2019. The EU’s goal is to have a climate-neutral economy by 2050, with a 55 percent decrease scheduled to have taken place by 2030. The Green Deal comprises a one-trillion-euro investment plan over the next ten years to meet these climate goals. Despite this massive expenditure, the EU relies on private sector help to achieve the Paris climate pact.
The EU Taxonomy regulation and the Sustainable Finance Disclosure Regulation (SFDR) are implemented to ensure equal competition and legal certainty for all companies operating within the EU. Both regulations follow the objective of the Green Deal and have the following key goals:
- Reorientation of capital flows with a focus on sustainable investments
- Establishing sustainability as a component of risk management
- Promoting/encouraging long-term investment and economic activity
EU taxonomy overview. EU Taxonomie Info. (n.d.). Retrieved February 4, 2022, from https://eu-taxonomy.info/info/eu-taxonomy-overview
EU taxonomy for Sustainable Activities. European Commission – European Commission. (2022, February 2). Retrieved February 4, 2022, from https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en