17th January, 2022Philippe Belot

The EU Sustainable Finance Taxonomy: A GBRW Whitepaper

This white paper introduces in a practical way the EU taxonomy for sustainable activities (“the EU Taxonomy”). Green taxonomies are classification systems which determine what economic activities are “green” or environmentally-friendly. The lack of universally recognised definitions and methodologies for classifying economic activities and their impact on the environment is a major hindrance for companies, investors, asset managers, and banks wishing to make their portfolios more environmentally-friendly. This can lead to disputes over the integrity of green capital allocation which has been dubbed “green washing”.

The EU Taxonomy, first published during 2020-2021, represents the most ambitious attempt to date at classifying economic activities according to their environmental impact underlined by an evidence-based approach. Moreover, it includes minimum safeguards, essentially of a social and governance nature, making the EU Taxonomy a truly sustainable standard.

The Whitepaper explains why the EU Taxonomy is a milestone, not just for EU market players but for the sustainable finance sector in general. It is the most comprehensive standard to date, covering the six environmental objectives of climate change mitigation and adaptation, protection of water resources, pollution, the circular economy, and biodiversity. The Whitepaper describes the methodology to screen companies that have multiple economic activities and investment funds with diverse portfolios, and how the EU Taxonomy handles the activities that today have no technologically and economically feasible low carbon alternative. It discusses the impact it may have on banks and the challenges facing its implementation.

In conclusion, the white paper exposes what makes the EU Taxonomy unique by comparing it with various other taxonomies currently used today, such as the Green Bond Principles or the Climate Bonds Intitiative. Please click here or below to download the Whitepaper.