An agreement on a sustainable finance taxonomy (nothing to do with taxation, but rather a set of common terminology and classification) was long awaited, as it is the cornerstone of the initiatives the European Union is developing to implement the Paris agreement. These negotiations have proven more difficult to agree upon than other initiatives such as sustainable disclosure or benchmarks proposed by the European Commission two years ago, and already published in the Official Journal of the EU.
One of the goals of the Finish presidency was to close a deal before the end of its half year term, i.e. end of this month. On 6 December, a compromise was announced between the Presidency of the Council and the European Parliament. However, on Wednesday 11th December, the Council through its Committee of Permanent Representatives (the so-called COREPER) rejected the agreement.
Another round of discussions took place in Council on Monday in order to set new red lines and adapt the Council presidency mandate to negotiate with the European Parliament. The Council presented on Monday evening its last deal before the end of the year to the European Parliament. The latter accepted in principle the deal. The COREPER accepted this revised trilogue agreement on Wednesday 17th December. It is now safe to say that there is a deal on taxonomy.
What’s in the deal
The proposed framework is based on six environmental objectives that will help the EU to become climate neutral by 2050 and achieve the Paris agreement’s 2030 targets. Then, it defines the requirements that an economic activity has to fulfil in order to qualify as environmentally sustainable.
- In terms of scope, all financial products offered in the EU will need to refer to the EU taxonomy. A disclaimer is nevertheless foreseen to opt-out.
- Some of the most contentious points were on governance and nuclear activities.
- On governance it was agreed that delegated acts will be produced by the European Commission on technical screening criteria, with the contribution of Member States expert groups.
- On nuclear, these activities are not excluded and could be considered “transition” activities under certain conditions.
- An important revision clause was agreed upon: the Commission is to review two years after the entry into force of the legislation the possibility to produce a “brown taxonomy”.
The agreement will have to be approved first by the two competent bodies of the European Parliament i.e. the ECON and ENVI Committees, and will then put to a vote during an upcoming plenary session. At the same time, the new rules will be formally adopted by the Council of the EU and if all goes well the taxonomy should be established by the end of 2020, in order to ensure its full application by end of 2021.
By Aurélie Cassou, Senior Adviser, ABBL & ALFI