EC is consulting on a draft delegated regulation to supplement the Taxonomy Regulation (2020/852) by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as environmentally sustainable. This delegated act builds on the recommendations of the Technical Expert Group on Sustainable Finance (TEG). The public consultation will be open until December 18, 2020. EC will consider the feedback received before finalizing adoption of the delegated act. The delegated act will then be subject to scrutiny by the European Parliament and the Council and will apply from January 01, 2022.
The Taxonomy Regulation establishes the framework for the EU taxonomy by setting out four conditions that an economic activity must meet to qualify as environmentally sustainable:
- It contributes substantially to one or more of the six environmental objectives set out in Article 9 of the Taxonomy Regulation in accordance with Articles 10 to 16 of that Regulation.
- It does not significantly harm any of the other environmental objectives set out in Article 9 of the Taxonomy Regulation in accordance with Article 17 of that Regulation.
- It is carried out in compliance with minimum (social) safeguards set out in Article 18 of the Taxonomy Regulation.
- It complies with technical screening criteria established by EC through delegated acts in accordance with Articles 10 (3), 11(3), 12(2), 13(2), 14(2) or 15(2) of the Taxonomy Regulation. The technical screening criteria need to specify the performance criteria for a specific economic activity that determine under what conditions the activity makes a substantial contribution to a given environmental objective; and it does not significantly harm the other objectives.
The proposed delegated regulation specifies the technical screening criteria under which specific economic activities qualify as contributing substantially to climate change mitigation and climate change adaptation and for determining whether those economic activities cause significant harm to any of the other relevant environmental objectives. Annex I to the draft regulation sets out the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives. Annex II to the draft regulation sets out the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives. The final regulation is expected to enter into force on the twentieth day following that of its publication in the Official Journal of the European Union.
Earlier this year, EC also conducted a proportionate impact assessment to inform and accompany the delegated regulation. While the impact assessment concluded that EC should generally follow the approach and the TEG recommendations, it also helped conclude that the delegated regulation should deviate from the TEG report in some instances, to better align with the requirements for technical screening criteria set out in the Taxonomy Regulation. The impact assessment recommended the inclusion of certain additional activities for climate change mitigation and adaptation to cover further activities with significant potential while preserving the coherence of EU taxonomy. Certain activities from the TEG report, for which a complex and in-depth technical assessment still needs to be completed, have not been included in this draft delegated regulation.
Comment Due Date: December 18, 2020
Keywords: Europe, EU, Banking, Insurance, Securities, ESG, Sustainable Finance, Climate Change Risk, Taxonomy Regulation, Proportionality, Technical Screening Criteria, EC
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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