As the EU’s green taxonomy evolves, harmful social investments are under debate

• EU Sustainable Finance Platform looking at creating a social taxonomy.

• Final negotiation of climate regulations.

• Working with China, India on sustainable financial rules.

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Nathan Fabian, chair of the European Platform on Sustainable Finance
Source: Principles for Investment Responsibility

Nathan Fabian chairs the European Platform on Sustainability Finance and primary responsibility insales officer at the United Nationssupported principles for Investment with responsibility. The stage is a group of industry experts, finance and civil society advising the European Commission, the EU’s executive arm, on the future of sustviable monetary policy in Europe.

The platform was set up as part of an EU regulation to build a taxonomy to define environmentally friendly investments and establish performance thresholds for companies and businesses seeking to reduce or modify greenhouse gas emissions. to change in weather.

The taxonomy assesses 67 economic activities, spans manufacturing to transport, and is designed to guide companies as they adapt their business strategies to climate change, as well as investment investment help judge sectors based on their environmental performance. It is expected to take effect in 2022, and some regulations have yet to be finalized. In an interview, Fabian told S&P Global Market Intelligence about upcoming developments in taxonomy regulation.

The following transcript is edited for length and clarity. Listen to an audio from the interview on the ESG Insider Podcast, available on SoundCloud, Spotify and Apple podcast.

S&P Global Market Studies: What kind of challenges do you face this year in introducing the EU taxonomy?

Nathan Fabian: We are working, first, on the four additional environmental goals under taxonomy management – water, biodiversity, pollution and a global economy – and working out how much they contribute significantly to the goals. European. We are developing criteria and plan to share our initial suggestions with the public for feedback in mid-2021, but we are doing much more than this.

We are examining whether it is possible to create a social taxonomy and whether, in addition to making a substantial contribution, this idea of ​​a progressive or green taxonomy should also have criteria for significant harm. identify so that the taxonomy would have two functional criteria. for each action. This would create a much richer continuity, if you will, of levels of environmental performance that the market could use to achieve its performance and report on the performance or performance of an individual economic activity according to these criteria. .

Do you think that, over time, the taxonomy will take a global approach, bring environmental, social concerns and bring them all together?

We are working on how we can use the taxonomy to drive finance to positive social outcomes and it will be a little different to green. The main reason is that some social goals are based in conventional norms and rights regimes, so the idea of ​​making a significant contribution to human rights is somewhat inappropriate. We have already recognized that there will be some differences in the way any social taxonomy tool is designed and what other types of publication you need on social factors. We need major investment in education, health, housing, creating fairer employment and a safer working environment in many countries. These are all essential social outcomes for the world and, if there is a working investment, investors want to know about it, so there will be some place for a social taxonomy. We hope to share our thinking around mid-2021.

Final talks are taking place in the EU on specific climate regulations. When can we expect a result?

The technical work from the platform has completed the field of climate mitigation and climate change. We are now at the political stage of the process where the European co-legislators must agree on the criteria. We hope and trust that they are doing their best to respect science and the evidence with these criteria so that it provides the most useful tool for the market but we must recognize it at the these instruments are ultimately controlled by a political process and must be supported by the European Parliament.

The final negotiations, the final testing of these criteria, are currently underway and we anticipate the proposed final criteria, the first legal criteria for mitigation and climate change, by mid-year. It seems to be April or May. Then everyone will know what to report for these two environmental goals in the coming years.

What advice would you give to investors who feel they do not have enough basic data on their holdings to comply with the taxonomy?

If you are an investor and need to make a taxonomic publication, it depends on what class of assets you are in and what type of financial return it is. The first thing to do is ask the basic supporter to provide the data. If you have a very large multiplication equity package you could say, “I’m definitely not going to write to everyone” but in those cases there will be plenty of taxonomy-related analysis results from ESG ranking providers and the only thing we have in the market is green revenue analysis. They are all looking at their approaches to how they can provide taxonomic assessment so there will be a way to do that in equity markets.

If you have more dense packages in real buildings or infrastructure, we then need to tell our owners that we want to see the data and ask them to pick it up over time, especially if they are not based in the Department. Europe and already covered by the non-financial reporting guidance, which, of course, creates legal obligations for around 7,000 registered companies to provide the data.

The EU is seen as a leader in establishing a legal framework for sustainable finance. How do you advise others on taxonomies?

There is something called the International Platform on sustainable finance, and it has China, it has India, it has the UK and several others participating. These countries are exchanging on sustainable financial management but also taxonomic planning. The way things work in practice is when a country wants to develop something like a taxonomy, it reaches out to the major financial centers around the world and asks for their opinion. We have this cross-fertilization of knowledge going on now and I would say the exchange rate is very high.

If you really want the harmony of taxonomies it will be a little more interesting and you will start to get some of the different national interests coming in, so it would be useful if taxonomic frameworks were similar to countries even although they would have different environmental objectives. This will allow the markets to understand how and why the criteria in different countries are different from each other.

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