EU Social Taxonomy for a sustainable finance

The stakeholder consultation on the social taxonomy held by the EU Platform on Sustainable Finance has been closed on Sept. 6. The Social Impact Agenda for Italy did participate. What is it about?

In July 2020 a European Taxonomy Regulation for sustainable activities entered into force. It establishes the basis for the EU taxonomy by setting out 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable. The initiative is based on the assumption that in order to meet the EU’s climate and energy targets for 2030 and reach the objectives of the European green deal, it is vital to direct investments towards sustainable projects and activities. To achieve this, a common language and a clear definition of what is ‘sustainable’ is needed. This is why the EU action plan on financing sustainable growth called for the creation of a common classification system for sustainable economic activities, or an “EU taxonomy.

The EU taxonomy would provide companies, investors and policymakers with appropriate definitions for which economic activities can be considered environmentally sustainable. In this way, it should create security for investors, protect private investors from greenwashing, help companies to become more climate-friendly, mitigate market fragmentation and help shift investments where they are most needed.

The development of the EU taxonomy relies on extensive input from experts from across the economy and civil society. This is why the Platform on Sustainable Finance, an advisory body composed of expert groups, has been tasked with advising the European Commission on further developing the EU taxonomy, improving its usability and exploring its expansion to social objectives, activities that significantly harm the environment or activities that are neutral towards the environment.

To do that the Platform experts groups delivered two drafts reports on potential extensions of the taxonomy framework beyond environmentally sustainable activities, to cover social objectives and activities that are significantly harmful to environmental sustainability, and those that have no significant impact on it. The Platform’s advice on this will feed into a Commission report on describing the provisions that would be required to extend the scope of the Taxonomy Regulation, to be adopted by the end of 2021.

The first draft report argues that in the face of a pandemic, unanswered social questions around a sustainable transition, continuing human rights abuses and continuously rising costs for housing, it is important to identify economic activities that contribute to advancing social objectives. The draft report argues that a social taxonomy would help investors to identify opportunities to finance solutions around ensuring decent work, enabling inclusive and sustainable communities and affordable healthcare and housing.

The second Draft report on taxonomy extension options linked to environmental objectives focusses on support for the environmental transition needed in the whole economy – it recommends further clarity on both: activities that are significantly harmful to environmental sustainability, and those that have no significant impact on it. The aim is to support transitions in areas currently of “significant harm”. They should transition to a level that at least does not cause significant harm, even if they do not actually reach substantial contribution (green).

The Platform gathered stakeholder feedback on the draft reports through two calls for feedback, which ran from 12 July to 6 September 2021. The Social Impact Agenda Italia has contributed to the consultation.
After considering the stakeholder input, the Platform will submit final reports with their advice to the Commission in autumn 2021. The Commission will analyse and consider these reports in view of the continuous development of the EU taxonomy, as anticipated in the new strategy for financing the transition to a sustainable economy.

As a result of more than a year of work, the platform shared the EU taxonomy linked to social objectives in the Social Taxonomy Report published on February 28, 2022.