Such a classification system is needed in order to guide all market actors on what economic activities are sustainable and in line with the EU 2050 climate goal. Moreover, Regulation (EU) 2019/2088 only considers an investment to be a sustainable investment if it does not significantly harm any environmental or social objective as set out in that Regulation. The delegated act on the remaining four environmental objectives should be adopted by the Commission by 31 December 2021 and will therefore apply from 31 December 2022. 1. Political agreement on the final compromise text of the Taxonomy Regulation was reached in December 2019, and the EU Parliament is expected to adopt it at some point during 2020. 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 established pursuant to point (a) of this paragraph causes significant harm to one or more of those objectives. We are recognised as a foremost authority in law and go-to organisation for legal expertise. For each environmental objective, uniform criteria for determining whether economic activities contribute substantially to that objective should be laid down. A copy of the Council’s press release published on 18 December 2019 can be found here5. Public-sector experts should include representatives of the European Environmental Agency, the ESAs, the European Investment Bank and the European Union Agency for Fundamental Rights. Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof. 1. (66)  Regulation (EU) No 1286/2014 of the European Parliament and of the Council of 26 November 2014 on key information documents for packaged retail and insurance-based investment products (PRIIPs) (OJ L 352, 9.12.2014, p. 1). 5. (38)  Directive (EU) 2016/802 of the European Parliament and of the Council of 11 May 2016 relating to a reduction in the sulphur content of certain liquid fuels (OJ L 132, 21.5.2016, p. 58). For that purpose, the Commission should keep the Member States informed through regular meetings of the Member State Expert Group on Sustainable Finance. An economic activity should qualify as contributing substantially to one or more of the environmental objectives set out in this Regulation where it directly enables other activities to make a substantial contribution to one or more of those objectives. Where financial market participants do not take the criteria for environmentally sustainable investments into account, they should provide a statement to that end. (51)  Directive 2009/125/EC of the European Parliament and of the Council of 21 October 2009 establishing a framework for the setting of ecodesign requirements for energy-related products (OJ L 285, 31.10.2009, p. 10). The most important and urgent action envisaged by the Action Plan is the establishment of a unified classification system on activities qualifying as contributing to environmentally sustainable objectives. The action plan recognises that the shift of capital flows towards more sustainable activities has to be underpinned by a shared, holistic understanding of the environmental sustainability of activities and investments. (49)  Directive 2012/27/EU of the European Parliament and of the Council of 25 October 2012 on energy efficiency, amending Directives 2009/125/EC and 2010/30/EU and repealing Directives 2004/8/EC and 2006/32/EC(OJ L 315, 14.11.2012, p. 1). Under the European Union (Withdrawal) Act 2018, the Taxonomy Regulation itself will form part of EU retained law after the end of the transition period. The TEG is expected to finalise its recommendations by February 2020. The first taxonomy-related disclosures for investment funds will apply from 1 January 2022 in respect of the climate change mitigation and adaptation environmental objectives. For the purposes of this Regulation, the competent authorities shall cooperate with each other and shall provide each other, without undue delay, with such information as is relevant for the purposes of carrying out their duties under this Regulation. Today's endorsement by … Readers should take legal advice before applying it to specific issues or transactions. The Commission shall gather all necessary expertise, prior to the adoption and during the development of delegated acts, including through the consultation of the experts of the Member State Expert Group on Sustainable Finance referred to in Article 24. On 22 June 2020, the Taxonomy Regulation was published in the Official Journal of the European Union and entered into force on 12 July 2020. 5639/20 JVB/JU /vm 1 ECOMP.1.B EN REGULATION (EU) 2020/… OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL of … on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (Text with EEA relevance) THE … That report shall evaluate the following: the progress in implementing this Regulation with regard to the development of technical screening criteria for environmentally sustainable economic activities; the possible need to revise and complement the criteria set out in Article 3 for an economic activity to qualify as environmentally sustainable; the use of the definition of environmentally sustainable investment in Union law, and at Member State level, including the provisions required for setting up verification mechanisms of compliance with the criteria set out in this Regulation; the effectiveness of the application of the technical screening criteria established pursuant to this Regulation in channelling private investments into environmentally sustainable economic activities and in particular as regards capital flows, including equity, into private enterprises and other legal entities, both through financial products covered by this Regulation and other financial products; the access by financial market participants covered by this Regulation and by investors to reliable, timely and verifiable information and data regarding private enterprises and other legal entities, including investee companies within and outside the scope of this Regulation and, in both cases, as regards equity and debt capital, taking into account the associated administrative burden, as well as the procedures for the verification of the data that are necessary for the determination of the degree of alignment with the technical screening criteria and to ensure compliance with those procedures; 2. 6. https://unfccc.int/process-and-meetings/the-paris-agreement/the-paris-agreement. Our global industry teams work together to share knowledge and experience so that we can provide our clients with insightful, innovative commercial advice. Final report of the TEG on the EU taxonomy In order to inform its work on the action plan, including on the EU taxonomy, the European Commission established a Technical Expert Group (TEG) on sustainable finance in July 2018. The Commission shall adopt that delegated act by 1 June 2021. THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION. The European Council and the European Parliament reached political agreement on the text of the Taxonomy regulation in December 2019. Private sector experts should include representatives of financial and non-financial market participants and business sectors, representing relevant industries, and persons with accounting and reporting expertise. The draft regulatory technical standards shall take into account the respective dates of application set out in points (a) and (b) of Article 27(2) of Regulation (EU) 2020/852 in respect of the environmental objectives set out in Article 9 of that Regulation. When assessing an economic activity against the criteria set out in paragraph 1, both the environmental impact of the activity itself and the environmental impact of the products and services provided by that activity throughout their life cycle shall be taken into account, in particular by considering the production, use and end of life of those products and services. (12) Regulation (EU) No 346/2013 of the European Parliament and of the Council of 17 April 2013 on European social entrepreneurship funds (OJ L 115, 25.4.2013, p. 18). The Non-Financial Reporting Directive enhances the transparency of the social and environmental information provided by undertakings in all sectors. In addition, economic operators that wish to attract investment from across the Union would have to meet different criteria in different Member States in order for their activities to qualify as environmentally sustainable. Many key provisions will not apply until a later date. (60)  Directive 2011/92/EU of the European Parliament and of the Council of 13 December 2011 on the assessment of the effects of certain public and private projects on the environment (OJ L 26, 28.1.2012, p. 1). Where the economic activity belongs to one of the categories referred to in point (h), the technical screening criteria shall clearly indicate that fact. What is the EU Taxonomy Regulation? Requirements for marketing financial products or corporate bonds as environmentally sustainable investments, including requirements set by Member States and the Union to allow financial market participants and issuers to use national labels, aim to enhance investor confidence and awareness of the environmental impact of those financial products or corporate bonds, to create visibility and to address concerns about ‘greenwashing’. (52)  Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/78/EC (OJ L 331, 15.12.2010, p. 12). On 18 June 2020, the European Parliament adopted the regulation on the establishment of a framework to facilitate sustainable investment [1] (the Taxonomy Regulation), a milestone in the EU’s Action Plan on Sustainable Finance (the Action Plan). (36)  Directive 2004/107/EC of the European Parliament and of the Council of 15 December 2004 relating to arsenic, cadmium, mercury, nickel and polycyclic aromatic hydrocarbons in ambient air (OJ L 23, 26.1.2005, p. 3). It is a classification system that enables categorization of economic activities/sectors that play key roles in climate change mitigation and adaptation. An economic activity shall qualify as contributing substantially to one or more of the environmental objectives set out in Article 9 by directly enabling other activities to make a substantial contribution to one or more of those objectives, provided that such economic activity: does not lead to a lock-in of assets that undermine long-term environmental goals, considering the economic lifetime of those assets; and. Common criteria for determining whether economic activities qualify as sustainable, including their impact on the environment, could underpin future similar initiatives of the Union to mobilise investment that pursues climate-related or other environmental objectives. Sustainability has long been central to the Union project, and the Treaty on European Union and the Treaty on the Functioning of the European Union (TFEU) reflect its social and environmental dimensions. To enhance transparency and to provide an objective point of comparison by financial market participants to end investors on the proportion of investments that fund environmentally sustainable economic activities, this Regulation supplements the rules on transparency in pre-contractual disclosures and in periodic reports laid down in Regulation (EU) 2019/2088. 3. The technical screening criteria should identify the minimum requirements necessary to avoid significant harm to other objectives, including by building on any minimum requirements laid down pursuant to Union law. To avoid market fragmentation and harm to the interests of consumers and investors as a result of diverging notions of environmentally sustainable economic activities, national requirements that financial market participants or issuers have to comply with in order to market financial products or corporate bonds as environmentally sustainable should build on the uniform criteria for environmentally sustainable economic activities. 1. (44)  Council Regulation (EC) No 338/97 of 9 December 1996 on the protection of species of wild fauna and flora by regulating trade therein (OJ L 61, 3.3.1997, p. 1). It has also been shown that national rules and market-based initiatives taken to tackle that issue within national borders lead to the fragmentation of the internal market. The Taxonomy Regulation does not invalidate existing environmental labelling schemes of individual EU Member States or prevent new ones from developing; however, such schemes will need to be consistent with the criteria in the Taxonomy Regulation as to what constitutes environmentally sustainable economic activities.5. For those economic activities, it is appropriate to establish technical screening criteria that require a substantial improvement in environmental performance compared with, inter alia, the industry average, but at the same time avoid environmentally harmful lock-in effects, including carbon-intensive lock-in effects, during the economic lifetime of the funded economic activity. (45)  Council Directive 92/43/EEC of 21 May 1992 on the conservation of natural habitats and of wild fauna and flora (OJ L 206, 22.7.1992, p. 7). The six environmental objectives that this Regulation should cover are: climate change mitigation; climate change adaptation; the sustainable use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; and the protection and restoration of biodiversity and ecosystems. An EU Taxonomy is indispensable in making the EU climate targets implementable in practice. One of the objectives set out in that action plan is to reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth. This site uses cookies to offer you a better browsing experience. However, within each sector, those criteria should not unfairly disadvantage certain economic activities over others if the former contribute to the environmental objectives to the same extent as the latter. An economic activity can contribute substantially to the environmental objective of transitioning to a circular economy in several ways. (32)  Commission Regulation (EU) No 1357/2014 of 18 December 2014 replacing Annex III to Directive 2008/98/EC of the European Parliament and of the Council on waste and repealing certain Directives (OJ L 365, 19.12.2014, p. 89). The delegated act on the first two climate-related objectives (i.e. (13)  Directive 2008/56/EC of the European Parliament and of the Council of 17 June 2008 establishing a framework for community action in the field of marine environmental policy (Marine Strategy Framework Directive) (OJ L 164, 25.6.2008, p. 19). 2. (*1)  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 (OJ L 198, 22.6.2020, p. 13).’;". 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