The European Commission's Platform on Sustainable Finance published the final report on social taxonomy. The report presents a proposed structure for a social taxonomy within the present European Union legislative environment on sustainable finance and governance. This environment currently consists of the existing legislation and the proposed initiatives on the European Union taxonomy, the proposed Corporate Sustainability Reporting Directive or CSRD, the Sustainable Finance Disclosures Regulation or SFDR, and the sustainable corporate-governance initiative.
The suggested structure of the social taxonomy employs certain structural aspects of the environmental taxonomy—namely, development of social objectives, types of substantial contributions, “do no significant harm” criteria, and minimum safeguards. Apart from the structural elements of a social taxonomy, the report suggests ways to ensure a balance in the relationship between an environmental taxonomy and a social taxonomy. One suggestion is that just as social and governance-related minimum safeguards are part of the environmental taxonomy, minimum environmental safeguards should be part of the future social taxonomy. The other suggestion is to integrate the social and environmental taxonomy more closely, with the environmental and social “do no significant harm” criteria being valid for both the social and the environmental activities. Finally, the report presents some requirements for future social criteria, and indicators within this framework, alongside ideas about the next steps for developing a social taxonomy. The next steps for developing a social taxonomy would be to
- Clarify the minimum safeguards according to the scoping note
- Conduct a study on the impact of a social taxonomy, considering different options for application and designs
- Work out a rationale for prioritizing objectives and sub-objectives
- Prioritize objectives according to the rationale
- Define the "substantial-contribution" and “do no significant harm” criteria for the first objective(s) and sectors
Keywords: Europe, EU, Banking, Insurance, Securities, ESG, Sustainable Finance, Social Taxonomy, Platform on Sustainable Finance, CSRD, NFRD, SFDR, EC, Subheadline
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
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