European taxonomy: extending the classification and scope
The EU's unified classification system aims to define economic activities that can be described as sustainable. This classification could be extended to include so-called significantly harmful activities, such as coal or gas-fired power plants. The EU Sustainable Finance Platform has published two reports in this sense: one on social taxonomy (end of February), the other on environmental transition taxonomy (end of March).
The aim of the proposed traffic light system is to better integrate the transition dimension into the EU taxonomy:
- Red: activities detrimental to the EU's environmental objectives
- Amber: activities with an intermediate sustainability performance
- Green: activities that make a substantial contribution to the EU's environmental objectives.
Activities with low environmental impact, which should not be considered red, amber or green, are also considered.
The platform should also introduce new criteria for the four remaining environmental objectives of the EU taxonomy: biodiversity, pollution, circular economy and water.
The scope of the taxonomy is being extended to a range of economic activities, beyond climate change alone. This brings new challenges and opportunities for sustainable investment, which will be analysed in the ABBL's Taxonomy and Labels working group.
Corporate Sustainability Due Diligence: proposal for a Directive
On 23 February 2022, the EC adopted a proposal for a Directive on corporate sustainability due diligence, to help companies better manage social and human rights issues, as well as environmental and climate change issues in their operations and value chains.
While some areas of the proposal require clarification, a cautious and proportionate approach is envisaged with regard to regulated financial companies. The ABBL will collect comments from its members and coordinate with other industry associations to identify concerns and suggestions to share with the Commission.
Converging reporting frameworks and disclosure rules
As the EC awaits technical advice from the European Financial Reporting Advisory Group (EFRAG) to adopt new European sustainability reporting standards, the IFRS Foundation and the Global Reporting Initiative (GRI) announced last week a new collaborative agreement under which their respective standard-setting boards, the International Sustainability Standards Board (ISSB) and the GLobal Sustainability Standards Board (GSSB) will coordinate their work programmes and standard-setting activities.
At the same time, the Securities and Exchange Commission (SEC) has detailed new requirements for US-listed companies to disclose the risk of climate change to their operations in their audited financial statements.
These developments demonstrate that the EU's work and proposals could inspire other countries to introduce stricter rules and a stronger framework to increase transparency and harmonisation on climate change, environmental degradation and social issues.
By Julien Froumouth
Call for participation
The ABBL is collaborating with two initiatives:
- The joint LHoFT and Deloitte project on "Fintech as an enabler of sustainable finance".
- The project to launch a LuxFLAG label for sustainable private banking mandates.
Would you like to participate or learn more about these initiatives? Contact Julien Froumouth.