Environmentally sustainable economic activities
- Category: Taxonomy
Environmentally sustainable economic activities are defined in Article 3 of the Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (Taxonomy Regulation).
According to the said provision such activities must:
a. make a substantial contribution to one or more of the six taxonomy environmental objectives;
b. do no significant harm (DNSH) to the other environmental objectives (with further definitions of harm provided for each environmental objective defined in Article 17); and
c. meet taxonomy minimum safeguards; and
d. comply with technical screening criteria (TSC) established by the European Commission in delegated acts.
According to Article 4 of the Taxonomy Regulation (Use of the criteria for environmentally sustainable economic activities in public measures, in standards and in labels) Member States and the European Union is required to apply the aforementioned criteria to determine whether an economic activity qualifies as environmentally sustainable for the purposes of any measure setting out requirements for financial market participants or issuers in respect of financial products or corporate bonds that are made available as environmentally sustainable.
It is noteworthy, taxonomy requires ‘substantial contribution’ to environmental objectives for activities to be included.
The document titled: “FAQs, Commission Technical Expert Group on Sustainable Finance", published on the European Commission’s website, explains (p. 6):
“Activities that are not a part of the taxonomy are not necessarily ‘polluting’: There are plenty of economic activities with very limited negative environmental impact or with only incremental contribution to environmental objectives. The taxonomy will require ‘substantial contribution’ to environmental objectives for activities to be included. Therefore, activities that do not qualify under the taxonomy are not necessarily polluting. They will simply not be categorised.”
The technical screening criteria address both how economic activities can be considered to make a substantial contribution to the environmental objectives and how to respect the DNSH criterion.
The taxonomy also includes two sub-categories of activities, i.e.:
- enabling activities (Article 16 of the Taxonomy Regulation), and
There is an obligation to disclose for each financial product the proportion invested in those sub-categories.