Abstract
A fundamental step to progress with EU’s climate and energy targets has been achieved with Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment (the “Taxonomy Regulation”). The Taxonomy Regulation envisages to create a level playing field for companies, investors and policymakers to access, provide and monitor the cornerstone of the 2050 carbon-neutrality path: sustainable financing. This is very likely the biggest challenge to deliver on EU’s environmental ambitions and the Taxonomy may support an important acceleration towards green financing. This chapter contributes to the legal debate around the strengths and limitations of the Taxonomy Regulation and the effects that the new rules on environmentally sustainable economic activities and their financing will have for companies across the European Union, in particular as refers to governance, financial and market implications. The purpose of this article is to discuss the Taxonomy Regulation’s implications for companies as part of the ESG frameworks that are required to be developed to support a new economic era driven by sustainability targets.
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Notes
- 1.
Communication from the Commission on EU Taxonomy, Corporate Sustainability Reporting, Sustainability Preferences and Fiduciary Duties: Directing finance towards the European Green Deal of April 21, 2021, see https://ec.europa.eu/finance/docs/law/210421-sustainable-finance-communication_en.pdf.
- 2.
One of the key trends that has developed over the last decade refers to integrated reporting under the International Integrated Reporting Council coalition, which was formed in 2010 and has in January 2021 published a new version (first version dates back to December 2013) of an International Integrated Reporting Framework that encompasses financial, environmental, social and governance disclosure.
- 3.
TCFD—Task Force on Climate-Related Financial Disclosures, currently with more than 2000 supporters of its 4 recommendations, PRI—Principles on Responsible Investment, currently with nearly 2700 signatories of its 6 principles or CDP—Carbon Disclosure Project, which promotes a global environmental disclosure system, benchmarking more than 2500 companies, are some of the main institutions that have been encouraging ESG topics to be integrated into the strategy of corporations and their respective disclosures.
- 4.
“Honey, I shrunk the ESG Alpha”: Risk-Adjusting ESG Portfolio Returns, April 2021, Scientific Beta, available at https://www.bankingexchange.com/recent-articles/item/8684-honey-i-shrunk-the-esg-alpha-new-research-questions-outperformance-data.
- 5.
The main framework on voluntary principles for issuing green bonds is set out by the International Capital Market Association, which was updated in June 2021 to reinforce transparency and encourage disclosure about alignment of projects with official or market-based taxonomies—https://www.icmagroup.org/assets/documents/Sustainable-finance/2021-updates/Green-Bond-Principles-June-2021-100621.pdf.
- 6.
There have been prior initiatives to incentivize climate-related funding, such as Decision No 1386/2013/EU of the European Parliament and of the Council of 20 November 2013 on a General Union Environment Action Programme to 2020 “Living well, within the limits of our planet”.
- 7.
According to the European Commission, 75% of SME’s financing is supported through banking financing.
- 8.
Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 (‘SFDR’) on sustainability‐related disclosures in the financial services sector.
- 9.
Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organizational requirements and operating conditions for investment firms.
- 10.
Commission Delegated Directive (EU) 2021/1269 of 21 April 2021 amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability factors into the product governance obligations.
- 11.
Delegated Regulation (EU) 2021/2139 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives. The EU Commission has also adopted on 6 July 2021 a delegated act specifying the content, methodology and presentation of the information to be disclosed by both non-financial and financial undertakings required to report about the alignment of their activities with the EU Taxonomy: Commission Delegated Regulation (EU) 2021/2178 of 6.7.2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation. On 9 March 2022, the EU Commission formally adopted a complementary Delegated Regulation to amend the Taxonomy Climate Delegated Act by adding technical screening criteria for certain economic activities in the natural gas and nuclear energy sectors that have not been included in that Delegated Act, which shall come into effect with its official publication.
- 12.
Article 1, paragraph 2b) and article 2, paragraph 3 of the Regulation and article 2, paragraph 12 of Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability-related disclosures in the financial services sector.
- 13.
Article 1, paragraph 2c) of the Regulation.
- 14.
According to the European Commission, “the energy sector accounts for approximately 75% of greenhouse gas emissions in the Union and thus plays a key role in climate change mitigation” (recital 14 of the Commission Delegated Regulation).
- 15.
Pacces, Alessio M., Will the EU Taxonomy Regulation Foster a Sustainable Corporate Governance? Amsterdam Law School Legal Studies Research Paper No. 2021-32 (November 2021), p. 13. Available at SSRN: https://ssrn.com/abstract=3940375.
- 16.
Och, Marleen, Sustainable Finance and the EU Taxonomy RegulationHype or Hope? (November 15, 2020). Jan Ronse Institute for Company & Financial Law Working Paper No. 2020/05 (November 2020), pp. 13–14. Available at SSRN: https://ssrn.com/abstract=3738255.
- 17.
See also the US Clean Energy for America Act (2021). Available at https://www.finance.senate.gov.
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de Oliveira Neves, R. (2022). The EU Taxonomy Regulation and Its Implications for Companies. In: Câmara, P., Morais, F. (eds) The Palgrave Handbook of ESG and Corporate Governance. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-99468-6_13
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