ISDA published its response to the EC consultation on the draft technical screening criteria for climate change mitigation and adaptation under the proposed delegated act for the EU Taxonomy. In its response, ISDA recommends, among others, alignment between the technical screening criteria and the relevant provisions in the existing EU legislation, establishment of a comprehensive framework for activities contributing to climate change mitigation, a phase-in approach to activities, respecting the technological neutrality of the screening criteria, and incorporation of a grandfathering clause for certain data. The ISDA response endorses the general remarks of the European Federation of Energy Traders. EC is expected to adopt the final delegated act for EU Taxonomy in early 2021.
ISDA welcomes the opportunity to respond to EC consultation on technical screening criteria for climate change mitigation and adaptation. The following are the key highlights of the main recommendations of ISDA in response to the EC consultation:
- Ensuring alignment between the technical screening criteria laid out in the delegated act and the relevant provisions in the existing EU legislation. ISDA supports the alignment between a number of technical screening criteria laid out in the draft delegated acts and the relevant provisions in the existing EU acquis. ISDA urges EC to ensure that such alignment constitutes a common principle underpinning the Taxonomy Regulation (Article 19(1)(d)).
- Setting comprehensive framework for activities contributing to climate change mitigation. ISDA welcomes the EC commitment to ensuring that technical screening criteria consider whether the given economic activity makes a substantial contribution to climate change mitigation in accordance with the Taxonomy Regulation 2020/852. The delegated act should create a proportionate framework for both transitional and enabling activities, based on their respective contributions to climate change mitigation.
- Phase-in approach. For activities upgrading or altering existing assets or processes, the adaptation solutions identified need to be implemented within five years from the start of the activity. A similar phase-in approach should apply for the existing activities when the delegated act comes into application as well as for new activities established after the delegated act comes into application. The length of the phase-in should be proportionate to the type of activity.
- Respecting technological neutrality of screening criteria in line with Article 19(1)(a) of Taxonomy Regulation. The said article stipulates that the screening criteria must “identify the most relevant potential contributions to the given environmental objective while respecting the principle of technological neutrality, considering both the short and the long-term impact of the given economic activity.”
- Data grandfathering clause. A grandfathering clause should apply when data based on the time before the delegated act enter into force is compiled or transferred into the period for which taxonomy rules apply.
- Others. A “where feasible” or “where applicable” principle in application of the criteria is vital to implementing the criteria in practical terms and would benefit from further guidance (with industry input). Furthermore, to avoid any doubt, it should be clearly stated that third-country activities count if an Environmental Impact Assessment has been completed in accordance with equivalent national provisions or international standards.”
Keywords: International, Europe, EU, Banking, Insurance, Securities, Climate Change Risk, ESG, Technical Screening Criteria, Sustainable Finance, Taxonomy Regulation, Responses to Consultation, EC, ISDA
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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