Expert Group Proposes Revamp of EU Taxonomy 

April 1, 2022

The Platform on Sustainable Finance, an expert group of the European Commission, has proposed a significant expansion of the EU’s Taxonomy for sustainable finance.

In a new report, the group recommends adding categories for economic activities with significantly harmful economic impact that require urgent action to address.

It also wants to include activities and sectors with “intermediate” or “low” environmental performance or impact, to provide users with a fuller picture of the EU’s economy and incentivise capital flows towards areas that need it and away from areas causing harm.

The EU Taxonomy – which came into effect at the start of this year – initially focused on climate change mitigation and adaptation, but the group’s report wants to extend its coverage to other environmental issues, as well as harmonise with the EU’s planned social finance taxonomy.

“This transparency will help companies and other economic actors tell their own transition stories whilst robustly ensuring that clarity is brought to bear on what really makes a substantial contribution, what makes a lesser but important contribution, and what is actually causing the problem, where urgent action is needed,” the report stated.

The proposed extension would provide more nuance to help classify activities such as nuclear and gas energy production, which caused controversy when they were introduced into the taxonomy earlier this year.

Several EU member states protested the move, including Germany, Austria, and Luxembourg, citing significant risks associated with nuclear energy in particular.

In addition, the Platform on Sustainable Finance recommended adding in information about economic activities “with no technological possibility of improving their environmental performance” and a grading system for environmental performance levels.

It also wants to add in definitions of low impact activities and industries and related guidance.