Sets Net Zero Paths to 2050: Affirmative and definite signal for corporations and institutional investors
The EU Technical Expert Group (EU TEG) on Sustainable Finance has just released their highly anticipated final recommendations to the European Commission on the EU Taxonomy; An opportunity to help grow low carbon sectors and decarbonise high emissions ones.
Transitioning to a climate-neutral economy by 2050 requires clear tools and guidance, reflecting scientific evidence and market experience, to give confidence to companies and investors to act.
The EU Taxonomy provides a clear picture to companies and investors of the economy that can fulfil Europe’s 2030 and 2050 climate goals.
The EU TEG Final Report
The TEG final report provides updated sustainability criteria for 70 economic activities – including changes resulting from an open call for feedback in the summer of 2019.
This is the third report from the TEG and follows over 20 months of technical work involving more than 200 technical experts and two open consultations. The European Commission will now develop the legal instruments (Delegated Acts) to bring the Taxonomy criteria into legal effect.
At Glance- What’s been published today?
The TEG Final Report on EU Taxonomy which describes changes to the Taxonomy since the political agreement, explains the climate adaptation activities and has extensive implementation guidance for the Taxonomy, including on the minimum safeguards included in the Taxonomy Regulation.
Also, the Technical annex to the TEG final report on the EU taxonomy with screening criteria for 70 climate change mitigation and 68 climate change adaptation economic activities. Included are the 'Do No Significant Harm' criteria for pollution prevention and control, use and protection of water and marine resources, circular economy, and protection and restoration of biodiversity and ecosystems.
The Taxonomy report is complemented by the Usability Guide for the EU Green Bond Standard. The proposed voluntary Green Bond Standard intends to ensure that the financed investments contribute to the EU environmental objectives by following the EU taxonomy criteria. The TEG proposed the EU Green Bond Standard in its report of June 2019.
The European Commission will publish its decision on what form the final EU Green Bond Standard should have as part of the renewed sustainable finance strategy in the third quarter of 2020, following a three-month consultation period.
Future developments
Under the recently agreed Taxonomy regulation (coming into effect in 2021), investors and companies will disclose the environmental performance of the activities they invest in, building confidence and assurance in the green economy.
The EU plans to include further economic activities in the Taxonomy in the future via a new Platform on Sustainable Finance, which is expected to be operating by the end of 2020. The first company reports and investor disclosures using the Taxonomy are due at the start of 2022.
Economic activities such as electricity generation, urban transport, crop-agriculture and cement-manufacturing, if they meet the Taxonomy criteria, can be called 'environmentally sustainable' in financial products.
By providing criteria for activities in sectors that produce 93% of Europe’s emissions, the Taxonomy is expected to vastly expand market understanding of the sustainable financing opportunities available today.
Sean Kidney’s comments
“The release of these reports sets the pathway to net zero by 2050.”
“The EU Taxonomy opens up huge opportunities for institutional investors to support low carbon and green growth, transition activities and decarbonisation."
“Companies and investors need both confidence and guidance to commit the trillions needed in this decade and on to 2050 to achieve carbon neutrality. The TEG report with its updated sustainability criteria for 70 different economic activities provides a comprehensive level of guidance to the market, stakeholders and regulators.”
“It’s an affirmative and definite signal for corporations and institutional investors. The EU Taxonomy takes the wider sustainability and climate agenda and integrates it within real economy activities, giving boards and investors increasing confidence in their short- and long-term decisions.”
“The constructive impact of the previous EU HLEG and the EU TEG process is now emerging. Today’s announcement will positively shape investor decision making and corporate planning in multiple regions through the 2020s. It will help shift capital allocations towards sustainable economic activity, low carbon growth and a new array of investment and employment opportunities.”
‘Till next time,
Climate Bonds
Disclosure: Climate Bonds CEO Sean Kidney has been a civil society representative on both the EU High Level Expert Group on Sustainable Finance (HLEG) formed in 2016 and the subsequent Technical Expert Group (TEG) on Sustainable Finance.
