The EU’s Taxonomy is a technical rulebook that identifies sustainable activities that contribute to the bloc’s green transition and comply with the Paris Agreement under the EU Green Deal.
Large corporations are set to pump huge sums of money into the fight against climate change as the European Union’s green taxonomy of sustainable investments comes into effect, reports the Al Attiyah Foundation in its latest Sustainable Development Report.
The EU’s Taxonomy is a technical rulebook that identifies sustainable activities that contribute to the bloc’s green transition and comply with the Paris Agreement under the EU Green Deal.
Climate change adaptation and mitigation are two of six environmental objectives underpinning the EU Taxonomy, which includes, apart from climate change mitigation and adaption, protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems.
According to the Taxonomy, if a company works in any of the six fields, it can be considered sustainable as long as it meets the ‘Do No Significant Harm’ (DNSH) principle.
The DNSH principle entails that for an activity (investment-based or reform-based) to be sustainable it should not lead to significant harm to any of the other environmental objectives and should follow human rights and labour standards.
Under the EU’s Taxonomy and following the publication of EU Green Taxonomy’s Climate Delegated Act, corporations subject to the Non-Financial Reporting Directive (NFRD) are obliged to disclose the portion of their activities that qualify as “environmentally sustainable”.
This offers companies an opportunity to measure their performance and progress towards delivering the environmental objectives in a transparent and comparable manner. Furthermore, good alignment with the Taxonomy could improve companies’ reputation and therefore access to finance, making them more attractive to banks and investors.
Although not binding on non-EU financial market participants, European companies and oil and gas investors may use the Taxonomy to gauge whether or not an investment contributes to an “environmental objective,” such as climate change mitigation or adaptation.
This could be particularly pertinent for large gas producing countries such as the US, Russia, Australia, Qatar, and the UAE, and would force producers to align their strategies with ‘technical screening criteria’ outlined for fossil gas under the EU Taxonomy to attract foreign investment, as well as ensure “carbon-neutral” export to EU countries.
