The European Council has just approved the EU Taxonomy climate Delegated Act (DA), confirming into EU law the adoption of Technical Screening Criteria (TSC) for activities that contribute substantially to climate change mitigation and adaptation objectives. A result of multiple years of work and cross-sector collaboration, it is an important milestone for the EU’s sustainable finance agenda. It also provides essential momentum to ensure that the integrity of the EU Taxonomy is maintained, with all climate criteria remaining objective and technology-neutral.
The adoption of the climate Delegated Act is a significant achievement for the following reasons:
- Investors and companies can now start reporting against the EU Taxonomy as of next year, to meet upcoming disclosure requirements under SFDR and the Taxonomy Regulation.
- It gives the market a clear environmental performance benchmark, setting a common language for investors, companies, and other stakeholders. Importantly, it sets a technologically neutral performance threshold for electricity generation in the energy sector at 100gCO2e/kWh for substantial contribution to climate mitigation (following the recommendations of the TEG), and 270gCO2e/kWh for significant harm.
- It provides the basis for other important legislative initiatives in the EU’s renewed sustainable finance strategy, linked to sustainability reporting, financial advice based on sustainability preferences, labelling and standards for sustainability-themed financial products.
The Delegated Act’s adoption also provides important momentum to ensure that the integrity of the EU Taxonomy is maintained. To be useful for investors, it is crucial that the EU Taxonomy technical screening criteria remain based on the best available scientific evidence, as required by the Taxonomy Regulation. Specifically, the climate delegated act’s thresholds for electricity generation should be upheld in future delegated acts. Weakening or adjusting criteria would undermine the credibility and usefulness of the Taxonomy and risk creating stranded assets and accelerating climate risks, to the ultimate detriment of European savers and citizens.
In response to speculations about the development of a complementary delegated act to include fossil gas-fired power and nuclear energy, the PRI has published a position paper exploring alternative legislative solutions that could recognise the role that these sectors can play in the transition, without labelling them as inherently sustainable activities according to the EU Sustainable Taxonomy.
PRI will continue to work closely with its signatories on the implementation of the EU Taxonomy and upcoming reporting requirements. A first set of investor case studies was published in 2020 (Testing the Taxonomy), and a follow up report will be released early next year.
Fiona Reynolds, CEO of the PRI
“The adoption of the first set of EU Taxonomy criteria is a significant achievement, as it sets into law for the first time a common understanding of which and to what extent activities covered are environmentally sustainable. It is now crucial that the EU Taxonomy technical screening criteria remain based on the best available scientific evidence. PRI will be attentive to a possible second delegated act that could cover nuclear energy and gas-fired power. Any proposal from the European Commission should consider investors need for objective criteria. Recognising activities that have a role in the transition, for example via an extension to the EU Sustainable Taxonomy, should be prioritised by EU policymakers”.
Under the Taxonomy Regulation, the European Commission must develop a list of environmentally sustainable activities by defining technical screening criteria (TSC) for each environmental objective through delegated acts (DA). The first Taxonomy climate DA, published in April 2021, sets out criteria to assess the environmental performance of almost 80 climate change mitigation activities and almost 100 climate change adaptation activities, including do-no-significant-harm criteria across six environmental objectives. The criteria cover over almost 80% of direct GHG emissions.