E UT AXONOMY
IntroductionThe European Parliament and Council of 18 June 2020 have enacted the Taxonomy Regulation (EU) 2020/852, which is a crucial instrument of the European Union that promotes sustainable investment and implements the Green Deal. The Regulation establishes an uniform and unambiguous framework for identifying economic activities that can be classified as environmentally sustainable. The objective is to channel private and public funds towards projects and activities that contribute significantly to the EU’s environmental goals while simultaneously minimizing the impact on other objectives
The Taxonomy Regulation is a component of the EU’s strategy to achieve climate neutrality by 2050. The framework is founded on the principles outlined in the TFEU and international commitments of the EU, including the Paris Agreement and the Sustainable Development Goals. The regulation seeks to redirect capital into sustainable investments in pursuit of the objectives of European Green Deal, which include climate action, adaptation to climate change, sustainable use of water and marine resources, circular economy, pollution prevention and protection, and restoration of biodiversity and ecosystems
The regulation comprises several chapters that outline precise criteria for categorizing economic activities as environmentally sustainable. Six environmental goals are outlined and it is stipulated that an economic activity must meet certain conditions to be considered sustainable:: 1. Contributes significantly to one of the six environmental goals (Article 9). 2. Does not significantly affect the other environmental goals (Article 17) in any way. 3. Meets the minimum social and governance criteria as outlined in Article 18. 4. Meets the technical screening requirements of the European Commission (Articles 10–15)
The regulation includes guidelines for financial market participants and companies to ensure that investors and other stakeholders receive comparable and transparent information on the sustainability of their investments
The Taxonomy Regulation is a significant step towards European sustainability policy. It provides an uniform categorization of sustainable economic activities, which allows investors to make informed decisions and prevents greenwashing. Moreover, it facilitates the examination and comparison of sustainable financial products and builds investor confidence in the market for sustainable investments
Whereas:
(1) The Treaty on European Union article 3 (3) aims to create an internal market that promotes sustainable development in Europe, including balanced economic growth and environmental protection
The European Union’s central objective as defined in Article 3 (3) of the TEU is to create a social and environmental market that prioritizes economic development. Ecological and environmental protection must be integrated into the internal market design, not just as a side effect of economic development
This idea is reflected in the Taxonomy Regulation (EU) 2020/852, which establishes uniform criteria for sustainable investments. The TEU’s sustainability objective is outlined and the economic activities are verified to meet ecological demands
For a business that invests in renewable energies, the Taxonomy Regulation would be of great assistance, as there are distinct guidelines for identifying environmentally friendly activities. Investors can make informed investments and invest in sustainable projects as a result
In the construction industry, a regulation mandates that construction projects must meet rigorous environmental standards to be classified as “sustainable.”. This includes measures to enhance energy efficiency, sustainable building materials, and CO2 emissions reduction
(2) A new global framework for Sustainable development, the 2030 Agenda for Sustainable Development (referred to as “Agenda 2030”), was adopted by the U NG eneral Assembly on 25 September 2015. The Sustainable Development Goals are the central focus of the 2030 Agenda, which encompasses economic, social, and environmental sustainability. In the Commission communication titled ‘Towards a sustainable future’ on 22 November 2016, the Union ‘S policy framework is linked to these sustainability goals, and all internal and external policies and initiatives are made to take into account these goals from the outset. The Council’s conclusions on 20 June 2017 reaffirmed the Union and its Member States ‘determination to implement the 2030 Agenda in a fully, coherent, comprehensive, inclusive, and effective manner with other stakeholders. The Commission made public its communication titled’ on the European Green Deal ‘on 11 December 2019.
The paragraph presents the 2030 Agenda as a globally recognized blueprint for sustainable development. The United Nations General Assembly adopted a comprehensive plan in 2015 that included 17 Sustainable Development Goals (SDGs). The three dimensions of sustainability are addressed by these goals:: A. T he economic aspect involves promoting prosperity, inclusive economic growth, and productive employment. B. A ddressing poverty and inequality, enhancing education and health. C. T he environmental aspect encompasses the protection of natural resources, countering climate change, and promoting sustainable resource management. The comprehensive approach highlights that sustainable development demands a holistic approach that encompasses all social sectors, not just environmental protection. The European Commission’s communication “Towards a sustainable future” from 22 November 2016 indicates that the EU is committed to implementing the 2030 Agenda objectives in all its policies. The Union’s internal and external policy measures must prioritize sustainable development. The connection ensures that the SDGs are not viewed as isolated objectives, but rather as principles in the political work of the EU
This determination is reaffirmed in the Council conclusions of 20 June 2017. They highlight the need for Member States and the EU to work together closely with international partners and stakeholders to implement the 2030 Agenda in a fully integrated and coherent manner
The 11 December 2019 communication “on the European Green Deal” builds upon the previous mentioned strategies. An ambitious EU initiative, the Green Deal aims to achieve several objectives, including:: A. C limate neutrality by 2050, B. P romoting sustainable economic practices, C. P rotecting biodiversity and D. B uilding a circular economy
It provides a practical framework for the implementation of sustainability goals set out in the 2030 Agenda, both politically and economically. Europe can now actively participate in shaping the transition to a sustainable future, thanks to The Green Deal
A national investment programme that combines renewable energy with social inclusion could serve as an effective demonstration of the 2030 Agenda and the Green Deal. Imagine if an E UM ember State implemented a support programme for the development of wind and solar energy plants. The local population, particularly in areas with weak structural support, is trained to take advantage of the new jobs available under the green economy. This programme: A. C ontributes to the attainment of climate targets (ecosystem), B. I ntensifies economic growth and employment opportunities (economic aspect) C. F osters the development of socially conscious communities (social dimension). The 2030 Agenda’s inclusion in national and European policies is demonstrated through a tangible set of measures
(3) The United Nations Framework Convention on Climate Change and the Paris Agreement were both ratified by the Union (3) on 5 October 2016. The Paris Agreement’s Article 2 (1) outlines the objective of taking stronger action against climate change, which includes aligning financial flows with a path towards low greenhouse gas emissions and climate-resilient development. On 12 December 2019, the European Council adopted conclusions on climate change. Against this backdrop, this Regulation is an important step towards achieving a climate-neutral Union by 2050.
In 2015, the Paris Agreement was adopted by 195 Parties and became effective on 4 November 2016. The European Union pledged to actively participate in the reduction of worldwide greenhouse gas emissions by ratifying the Agreement on 5 October 2016. The agreement aims to achieve a minimum of 2 °C, which is the main objective. The temperature has decreased to 5 °C compared to pre-industrial times. To achieve this, it is necessary to drastically cut down on CO2 emissions and shift towards a more environmentally friendly economy. The Paris Agreement’s article 2, paragraph 1, letter c highlights the importance of Financial flows for climate protection: The special article mandates contracting parties to direct financial flows in a way that promotes low-emission and climate-resilient development. Investors should be more interested in investing in sustainable projects as investments decrease in climate-damaging sectors. A. B anks and investment funds should give their support to sustainable companies. B. T he focus of public spending should be on renewable energies, climate-friendly infrastructure, and sustainable technology research. C. T he assessment of climate risks by companies is crucial for obtaining more capital for their projects
The Taxonomy Regulation (EU) 2020/852 is specifically aimed at achieving this goal by creating an uniform definition of sustainable investments to align with climate goals
The European Council emphasized on 12 December 2019 that the EU must become climate neutral by 2050. To avoid or offset the remaining greenhouse gas emissions, technologies like CO2 storage or reforestation must be implemented
By providing investors with a clear understanding of sustainable investments and offering them more options, this regulation is an important step towards achieving this objective
A substantial pension fund intends to put its money into companies that have a long-term impact and are economically successful. The Taxonomy Regulation restricts the fund to companies that have a proven track record of helping to reduce greenhouse gas emissions
A company that uses fossil fuels and does not have a plan to reduce emissions is considered unsustainable. In contrast, an investment in renewable energies and the development of climate-friendly production processes is considered a sustainable investment
European Union Sustainability.