Purpose of the regulation
The European regulation 2020/852 aims to establish "the criteria for determining whether an economic activity qualifies as environmentally sustainable for the purposes of establishing the degree to which an investment is environmentally sustainable" (Article 1)
The taxonomy is designed to support a whole set of regulations and codes of conduct for a number of European actors:
-
states for the definition of their legislation
-
companies for their investment strategy and the transparency of their activities
-
investors and designers of investment products (collective investment schemes, insurance companies, banks) to guide asset selection
The text of the regulation defines the general framework and lists the sustainability criteria. A summary is presented below.
It should be noted, however, that this text is only the tip of the iceberg. The TEG (Technical Expert Group) has also produced an enormous amount of work analysing the economic sectors that are assessed according to their potential contribution to the first two criteria (climate change mitigation and climate change adaptation). These are the "technical screening criteria" that are used to assess the sustainability of an activity (see below).
The taxonomy is not set in stone, the technical screening criteria are not yet all defined and are logically intended to become more 'hardened' as the market aligns. The further development of the taxonomy has been entrusted to the "Sustainable Finance Platform", a group of fifty experts, seven representatives of public bodies and ten observers.
What is an environmentally sustainable economic activity? (article 3)
An environmentally sustainable economic activity:
Substantially contributes to at least one of the environmental objectives defined in Article 9
Does not significantly harm any of the environmental objectives
Meets minimum safeguards
Complies with technical screening criteria established by the European Commission
The environmental objectives (article 9)
An environmentally sustainable economic activity contributes substantially to at least one of the environmental objectives. What are they?
-
Climate change mitigation
-
Climate change adaptation
-
Sustainable use and protection of water and marine resources
-
Transition to a circular economy
-
Pollution prevention and control
-
Protection and restoration of biodiversity and ecosystems
In addition, there are "enabling" activities, which allow other activities to contribute to an environmental objective, provided they meet certain conditions.
The table below gives more detail on the activities that fit into each environmental objective.
-
Production, transmission, storage, distribution and use of renewable energy
-
Improved energy efficiency
-
Clean mobility
-
Use of renewable materials
-
Carbon capture and utilisation (CCU) and carbon capture and storage (CCS) technologies
-
Strengthening of land carbon sinks
-
Infrastructure for decarbonising energy systems
-
Clean fuel production
Transitional activity : activity for which there is no low-carbon alternative but favoring the transition to a climate neutral economy.
These activities include or provide solutions that prevent or reduce negative impacts of the climate and its expected evolution on a population, on nature or property and that do not increase the risk of negative impacts on another population, nature or property.
Protection against discharges of contaminants via urban or industrial water
Protection of water intended for human consumption from contaminants
Improving the efficiency of water management, in terms of quality or quantity
Sustainable use of marine ecosystem services and protection of marine ecosystems
Reduced consumption of primary raw materials and energy and increased use of secondary raw materials
Increased durability, reparability, upgradability and reusability of products
Increased recyclability of products
Reduction in the content of hazardous substances or substances of concern
Prolongation of the use of the products
Increased use of secondary raw materials
Reduction in waste generation
Reuse and recycling of waste
Waste management infrastructure for recycling
Reduction of waste incineration and landfill
Avoidance and reduction of litter
Prevent or reduce emissions of pollutants other than greenhouse gases
Improvement of water, air or soil quality in areas of economic activity
Preventing negative impacts of chemicals on human health
Cleaning up litter and other forms of pollution
Conservation and protection of biodiversity and ecosystems
Sustainable land use
Sustainable agricultural practices
Sustainable forest management
Has a significant positive environmental impact on the life cycle
Does not lead to a lock-in of assets that compromise long-term environmental goals
Do no significant harm to any environmental objective (article 17)
To be "sustainable", it is not enough to meet one or more environmental objectives, it is also necessary not to undermine the other objectives! For each environmental objective, the text also defines "disqualifying" criteria.
Does not lead to significant greenhouse gas emissions
Does not lead to increased negative impacts of climate change on people, nature or property
Is not detrimental to the good ecological status of freshwater bodies or marine waters
Does not present significant inefficiencies in terms of resource use and product sustainability.
Does not lead to a significant increase in waste generation or disposal, with the exception of the disposal of hazardous waste.
Disposal of waste has no long-term adverse effects on the environment.
Does not lead to a noticeable increase in pollutant emissions into the air, water or soil.
Is not detrimental to the resilience of ecosystems
Is not detrimental to the conservation of species habitats
Minimum safeguards (Article 18)
The taxonomy focuses on environmental aspects, however, in line with ESG (Environment, Social, Governance) principles, compliance with basic social criteria is required.
Technical screening criteria
As already mentioned, the most important part of the regulation is the annex, a large Excel workbook (Download, 6 Mb) which lists, by economic sector (identified by their NACE code) the sustainability criteria for two objectives (the other objectives will be covered later): climate change mitigation and climate change adaptation.
The text of the Regulation specifies the principles that guide the development of these criteria (article 19).
- Identify the most relevant contributions, taking into account the principle of technological neutrality and short- and long-term impacts
- Specify the requirements to be met to avoid significant harm to environmental objectives
- Are quantitative and include thresholds where possible or, otherwise, qualitative
- Are built upon existing EU legal instruments and standards
- Use sustainability indicators
- Are based on scientific evidence and the precautionary principle
- Take into account the life cycle
- Take into account the nature and scale of the economic activity (transitional or enabling activity)
- Take into account the risk to markets that some assets become stranded and the risk of creating inconsistent incentives for sustainable investment
- Cover all relevant economic activities within a given sector while avoiding distortions of competition
- Are easy to use and verify
Examples of sustainability criteria
The tables below show, for two examples of activities (cement production and renovation of buildings), the evaluation criteria relating to the mitigation of climate change.
| NACE Macro-Sector | C - Manufacturing |
| Level 2 | C23 |
| Level 3 | C23.5 |
| Level 4 | C23.5.1 |
| Activity | Manufacture of cement |
| Description | Manufacture of cement |
| Principle |
The manufacturing of cement is associated with significant
CO2 emissions. Minimising process emissions through energy efficiency
improvements and switch to alternative fuels, promoting the reduction of the
clinker to cement ration and the use of alternative clinkers and binders can
contribute to the mitigation objective. Mitigation measures are eligible provided they are incorporated into a single investment plan within a determined time frame (5 or 10 years) that outlines how each of the measures in combination with others will in combination enable the activity to meet the threshold defined below actions. |
| Metric & Threshold |
Thresholds for cement Clinker (A) are applicable to plants
that produce clinker only, and do not produce finished cement. All other
plants need to meet the thresholds for cement or alternative binder.
|
| NACE Macro-Sector | F - Construction |
| Level 2 | F41 F43 |
| Level 3 | F41.1 F41.2 |
| Level 4 | |
| Activity | Building renovation |
| Description | Building renovation: this relates to activities under NACE codes F41.2 - Construction of residential and non-residential buildings and F43 - Specialised construction activities. |
| Principle |
The renovation of
existing buildings to increase their energy efficiency makes a substantial
contribution to climate change mitigation by reducing energy consumption and
GHG emissions for the remaining operational phase of the buildings, and by
avoiding emissions that would be associated with the construction of new
buildings. Condition for non-eligibility: to avoid lock-in and undermining the climate mitigation objective, the renovation of buildings occupied for the purpose of extraction, storage, transportation or manufacture of fossil fuels is not eligible. Use of alternative schemes as proxies: outside EU Member States, established schemes such as “green building” certifications or building regulations may be used as alternative proof of eligibility, provided that this is verified by the Sustainable Finance Platform. The organisation responsible for the scheme will be able to apply for official recognition of its scheme by presenting evidence that a specific level of certification/regulation can be considered equivalent (or superior) to the taxonomy mitigation and DNSH threshold. The Sustainable Finance Platform will assess the evidence and approve or reject the application. |
| Metric & Threshold |
The thresholds used to assess the
renovation rely on either the respective metrics set in the applicable
building regulation for ‘major renovation’ transposing the EPBD, or, in the
case of relative improvement, on Primary Energy Demand (PED) defined as
follows: the annual primary energy demand associated with regulated energy
use during the operational phase of the building life-cycle (i.e. ‘module
B6’ according to EN15978), calculated ex-ante according to the national
methodologies for asset design assessment, or as defined in the set of
standards ISO 52000, expressed as kWh/m2 per year. A renovation is eligible when it meets either one of the following thresholds:
|
To consult all the information made available by the European Commission concerning the taxonomy, see the EU taxonomy for sustainable activities.
- Do No Significant Harm
- Energy Performance of Buildings Directive (EU)
