The EU issued further updates in July 2021 with the key objective of the European Commission’s action plan on financing sustainable growth being to reorient capital flows towards sustainable investment and ensure market transparency. To achieve this objective, the Commission called for the creation of an EU classification system for sustainable activities, i.e., an EU taxonomy. Regulation (EU) 2020/852 (the ‘Taxonomy Regulation’) aiming to define environmentally sustainable activities.
The Taxonomy Regulation identifies environmentally sustainable economic activities based on technical screening criteria set out in the Commission’s delegated acts developed under this Regulation. The first delegated act concerning the technical screening criteria for economic activities with significant contribution to climate change mitigation and adaptation (the ‘Climate Delegated Act’) was adopted on 4 June 2021.
Another Delegated Act concerning the technical screening criteria for the remaining four environmental objectives (‘the Environmental Delegated Act’) will be developed and adopted later.
The Delegated Act specifies the disclosure obligations under Article 8 of the Taxonomy Regulation. The rules set out in the Delegated Act allows companies to translate the technical screening criteria of the Climate Delegated Act (and the future Environmental Delegated Act) into quantitative economic performance indicators - the KPIs - which will be publicly disclosed (e.g. the percentage of environmentally sustainable economic activities in a company’s turnover or capital expenditure). This disclosure will help investors and the public to understand the companies’ trajectory towards sustainability through the annual publication of their KPIs associated with environmentally sustainable economic activities.
The Delegated Act will therefore increase transparency in the market and help prevent greenwashing by informing investors about companies’ environmental performance.
