ICMA to address EU Taxonomy usability concerns

February 18, 2022

The International Capital Market Association (ICMA) is to address usability concerns over the EU Taxonomy for sustainable activities. Its new report highlighted the difficulty in sourcing or estimating the required information on alignment and the reliance on EU legislation in international markets.

The proposals were announced in the ICMA’s latest paper Ensuring the usability of the EU Taxonomy, which aims to provide solutions to issues emerging from regulation and market practice.

The paper identified challenges for the financial and corporate sector in providing information required by existing and proposed future regulatory reporting.

The ICMA stated existing research and market feedback has highlighted that the implementation of the EU Taxonomy “could be seriously impaired by usability issues”.

It has made five key recommendations. These include allowing flexibility on alignment with the ‘do no significant harm’ and ‘minimum safeguards’ principles; enabling technical screening criteria adaptation to non-EU jurisdictions to facilitate international usability; and allowing estimates and third-party data based on a common methodology.

It also recommended simplifying the EU’s Nomenclature of Economic Activities (NACE) for complex green and sustainability projects and grandfathering the taxonomy alignment of the legacy green bond market and Sustainable Finance Disclosure Regulation (SFDR) disclosures.

Bryan Pascoe, chief executive of ICMA, said: “The EU Taxonomy is an important and ground-breaking project designed to help inform the market and policymakers on their progress towards sustainability.

“Our analysis and proposals…  are a contribution to the ongoing efforts of many parties to ensure that it can fulfil in practice its intended objective.”

The EU Taxonomy aims to define environmentally sustainable activities to fulfil the EU’s objective of steering private and public capital to a sustainable economy. It will be used as the main classification tool to identify and monitor sustainable activities and as a reference for disclosure obligations and official labels for financial products.

The taxonomy is incorporated into EU regulation and legislation, which will require detailed environmental reporting by financial and non-financial firms under SFDR and eventually under the proposed Corporate Sustainability Reporting Directive and the EU Green Bond Standard.