Climate change adaptation

Taxonomy Regulation

Article 11

Substantial contribution to climate change adaptation

1. An economic activity shall qualify as contributing substantially to climate change adaptation where that activity:

(a) includes adaptation solutions that either substantially reduce the risk of the adverse impact of the current climate and the expected future climate on that economic activity or substantially reduce that adverse impact, without increasing the risk of an adverse impact on people, nature or assets; or

(b) provides adaptation solutions that, in addition to satisfying the conditions set out in Article 16, contribute substantially to preventing or reducing the risk of the adverse impact of the current climate and the expected future climate on people, nature or assets, without increasing the risk of an adverse impact on other people, nature or assets.

2. The adaptation solutions referred to in point (a) of paragraph 1 shall be assessed and ranked in order of priority using the best available climate projections and shall, at a minimum, prevent or reduce:

(a) the location-specific and context-specific adverse impact of climate change on the economic activity; or

(b) the potential adverse impact of climate change on the environment within which the economic activity takes place.

3. The Commission shall adopt a delegated act in accordance with Article 23 to:

(a) supplement paragraphs 1 and 2 of this Article by establishing technical screening criteria for determining the conditions under which a specific economic activity qualifies as contributing substantially to climate change adaptation; and

(b) supplement Article 17 by establishing, for each relevant environmental objective, technical screening criteria for determining whether an economic activity in respect of which technical screening criteria have been established pursuant to point (a) of this paragraph causes significant harm to one or more of those objectives.

4. Prior to adopting the delegated act referred to in paragraph 3 of this Article, the Commission shall consult the Platform referred to in Article 20 regarding the technical screening criteria referred to in paragraph 3 of this Article.

5. The Commission shall establish the technical screening criteria referred to in paragraph 3 of this Article in one delegated act, taking into account the requirements of Article 19.

6. The Commission shall adopt the delegated act referred to in paragraph 3 by 31 December 2020, with a view to ensuring its application from 1 January 2022.

Recital 25

An economic activity that pursues the environmental objective of climate change adaptation should contribute substantially to reducing or preventing the adverse impact of the current or expected future climate, or the risks of such adverse impact, whether on that activity itself or on people, nature or assets. That environmental objective should be interpreted in accordance with relevant Union law and the Sendai Framework for Disaster Risk Reduction 2015–2030.
 

Use Case 5: Aligning with best practices in adapting to impacts of climate change

How can my company demonstrate leadership on adapting to the physical impacts of climate change? How does the EU Taxonomy support this ambition?

Context

If your company falls under the scope of the NFRD/CSRD, you will be required to disclose information on your company's operational and capital expenditures towards adapting certain activities to the impacts of climate change. The EU Taxonomy supports businesses in becoming more resilient to climate change by providing criteria to determine what can be considered as making a substantial contribution to climate change adaptation.

Making this information available can signal to financial institutions and the wider public that your company is addressing physical risks of climate change in a comprehensive way. This can have positive effects on your company's reputation and improve your access to capital.

If you are not obliged to disclose your physical climate risks under the EU Taxonomy it is still of great benefit to conduct a climate risk and vulnerability assessment in an EU

Taxonomy-compliant way - for a variety of reasons: First, it gives you the opportunity to voluntarily disclose your expenditure for climate adaptation. Second, financial institutions (e.g, banks), investors and customers might expect you to act on or disclose information related to climate risks. Third, you may be able to profit from easier access to the capital markets, helping you to make the necessary upfront investments in climate-resilience that are likely to pay off in the future.

Proposed approach to address your challenge

Step 1 - Check whether your company is conducting any activities that are currently identified as having the potential to make a substantial contribution to climate change adaptation in the EU Taxonomy (i.e., whether the activities are Taxonomy eligible' - see Use Case 1).

Step 2 - If you have not yet taken any steps to deal with the impacts of climate change on these activities, screen each of your company's activities to find out what climate-related hazards from Appendix A of Annex Il of the Climate Delegated Act may affect the performance of the activities during their expected lifetime.

For example, a logistics company that uses inland freight water transport might be negatively affected by an increased frequency of days with low levels of water caused by climate change on important shipping routes as this forces them to reduce the loads on their vessels.

Step 3 - Where an activity could be affected by one or more hazards leading to physical impacts, conduct a thorough climate risk and vulnerability assessment. Such an assessment will point towards the actions that need to be taken to reduce possible risks.

Choosing your approach, you need to consider your resources and your data availability.

Regarding the risk assessment approach, the EU Taxonomy allows for flexibility, as long as the chosen approach is based on best practice and available guidance and is in line with state-of-the-art science on risk and vulnerability assessments from the Intergovernmental Panel on Climate Change (IPCC) reports and scientific peer-reviewed publications.

One appropriate way to make sure your assessment approach is based on a recognised quality standard is to follow the guidelines on vulnerability, impacts and risk assessment outlined in the European Standard EN ISO 14091:2021 for adaptation to climate change.

For such a standardised risk assessment you need to: (1) screen impacts from climate change and develop climate impact chains showing how your activities are affected by the identified hazards; (2) identify indicators for these impacts; (3) acquire and manage data for those indicators; (4) aggregate indicators and risk components; (5) assess your adaptive capacity; (6) interpret and evaluate your findings; (7) analyse cross-sectoral dependencies; and, (8) conduct an independent review of your findings.

Especially if you are a SME, guidance materials, like the Climate Expert Tool, can help you identify and assess the climate impacts most relevant for your company. For example, for the above-mentioned logistics company this would mean, among other things, to show how days with low levels of water have affected transport loads in the past and investigate in how far the number of such days will increase in the future as a result of the ongoing change of the climate.

Step 4 - Ensure that the climate projections used correspond to the lifespan of the activity. This is important because if you plant a forest or build a factory with a 60-year lifespan, you have to plan further into the future than if you plant a meadow or build a pump with a 15-year lifespan. Shorter time frame climate projections may be able to employ simpler techniques (for example, extrapolation of past climate change trend data) while longer timeframe projections require more complex assessments (for example, climate impact modelling). The Climate Delegated Act specifies that:

1.     For activities with an expected lifespan of less than 10 years, you need to use at least climate projections at the smallest appropriate scale corresponding to your activity's lifespan.
2.     For activities with a lifespan of more than 10 years, you need to incorporate state-of-the-art climate projections with the highest available resolution across a range of future scenarios. They need to include at least 10-to-30-year projections for major investments. For such projections, open-source models, e.g., accessible through the Copernicus services managed by the European Commission, are a good option.

For example, the logistics company could use a scientific study on the impacts of climate change on the two rivers on which the company conducts most of its business as one source of its assessment. The study uses a range of state-of-the-art climate projections across different scenarios and time periods. The study transparently discloses its methodologies, for example climate models employed and data sources which are recent, state of the art and reliable and the study is expert/peer-reviewed and published by a reliable entity.

Step 5 - Select adaptation solutions in a fashion that is tailor-made to the results of the assessment and the context, in which the solution is implemented. The adaptation solutions need to be integrated in an adaptation plan that ensures that all solutions collectively significantly reduce the identified impacts.

For example, given that the logistics company wants to reduce the risk of reduced transport loads during low water levels, one solution would be an update of the fleet with lightweight vessels that operate better under such conditions. The assessment has shown that this solution is financially feasible and practically implementable and will not affect the adaptation efforts of others nor contradict local and regional adaptation plans.

Because this physical solution is covered by another activity in the adaptation Annex, 6.8.

Inland freight water transport, the company has made sure that the solution complies with the DNSH criteria of that activity.

Step 6 - Implement the suitable adaptation solutions. Expenditures arising for the implementation can be reported at the end of each year as expenditures that contribute towards the adaptation objective of the EU Taxonomy.

For example, the expenses for purchasing lightweight vessels by the logistics company could then be reported as taxonomy-aligned expenditure.

Step 7: Set-up a monitoring and measurement system. When implementing adaptation solutions, the entity needs to define indicators to monitor the effectiveness of the solution. If the indicators are not met, remedial action need to be taken.

For example, for the monitoring of the solution, the company has defined an indicator that measures the target tonnes of freight transported on low water level. After the purchase and operation of the lightweight vessels they identify that the target indicator is not met as on some days the water levels are so low that the company can load the lightweight vessels only with half their freight capacity. The company considers remedial measures and decides to outsource to additional road transport to make up for the freight that cannot be transported on the waterway.

References to recommended resources:

•   EN ISO 1409:2021 European Standard "Adaptation to climate change - Guidelines on vulnerability, impacts and risk assessment"
•   Climate Expert Tool: A practical excel tool for SMEs, guiding you through relevant question in developing an adaptation strategy, including the assessment and prioritisation of climate risks and opportunities
  Copernicus Climate Change Service providing climate data and tools providing climate data and tools
•   Climate-ADAPT as a platform to share knowledge and experiences

Source: The EU Taxonomy User Guide, Document prepared for the European Commission, June 2023, p. 26 - 28