Expert group issues final recommendations for EU taxonomy

The taxonomy provides criteria for activities that produce 93% of Europe's emissions and is expected to vastly expand the market understanding of sustainable financing opportunities available today.

The European Commission is one step closer to finalising its new classification system for what qualifies as a sustainable investment.

On 9 March, the group of experts advising the commission, the Technical Expert Group (TEG) on Sustainable Finance, released its final recommendations for the EU taxonomy and the EU Green Bond Standard.

The taxonomy is the first set of common European rules to define what counts as a green investment, aiming to divert capital flows to more sustainable activities, increase transparency and stamp out “greenwashing.”

Nordea’s Aila Aho, a member of TEG, says including environmental aspects is a major and necessary change in how we make decisions in finance.

“Today many companies and investors would like to be able to say they are aligned with the Paris Agreement and European climate goals. Following the taxonomy climate mitigation criteria and the EU Green Bond Standard is a secure way to demonstrate they do contribute to these goals,” Aho says.

Aila Aho, Nordea executive adviser and TEG member

"Including environmental aspects is a major and necessary change in how we make decisions in finance."
- Aila Aho, Nordea executive adviser and member of TEG

Six environmental objectives of the EU taxonomy

  1. Climate change mitigation
  2. Climate change adaptation
  3. Sustainable use and protection of water and marine resources
  4. Transition to a circular economy, waste prevention and recycling
  5. Pollution prevention and control
  6. Protection of healthy ecosystems

Source: EU TEG on Sustainable Finance, Taxonomy Technical Report, June 2019 

The taxonomy is a classification tool that lists economic activities and performance criteria consistent with Europe’s commitment to reach net-zero carbon emissions by 2050 and build resilience to climate change.

To be considered environmentally sustainable, an activity must contribute to at least one of the six environmental objectives in the neighboring box and not significantly harm any of them.

What’s new in Monday’s announcement?

Monday’s EU Taxonomy Report, which describes changes since EU co-legislators reached a political agreement in December, explains the climate change adaptation activities. These are activities that help reduce the negative effects of current and expected future climate change. It also provides extensive implementation guidance for the taxonomy, including updated minimum safeguards, such as fundamental labour rights.

The report also includes a “Technical Annex” with screening criteria for 70 climate change mitigation and 68 climate change adaptation activities. Moreover, it provides guidance on the boundaries of negative impact, with “do no harm” criteria for pollution prevention and control, use and protection of water and marine resources, circular economy, and protection and restoration of biodiversity and ecosystems.

What’s more, the TEG also released the Usability Guide for the EU Green Bond Standard. The proposed voluntary standard intends to ensure that the financed investments contribute to environmental objectives by following the taxonomy criteria.

Don’t miss Aila Aho this Thursday, when she moderates a panel on the EU Green Bond Standard with other TEG member panellists. Watch a live stream of the European Commission’s “Stakeholder dialogue on Sustainable Finance,” here.

Timeline for the coming months

Here is an overview of the expected timeline for the implementation of the EU taxonomy and several broader developments.

EU Taxonomy

  • Q2/Q3-20: Final text of regulation for EU taxonomy expected to be ready
  • 31-Dec-20: European Commission to adopt the Delegated Acts on the technical screening criteria for climate mitigation and adaptation (12-month ratification period)
  • 31-Dec-21: European Commission to adopt the Delegated Acts on the technical screening criteria for other remaining environmental objectives (12-month ratification period)
  • 01-Jun-21: The EC will adopt a delegated act to specify the reporting requirements

Broader developments

  • Q1-20: European Commission to launch consultation on the sustainable finance strategy and Non-financial Reporting Directive (NFRD), the latter of which opened on 20 February 20
  • Q1/Q2-20: European Commission to open the call for applicants for the EU Platform on Sustainable Finance, which will be a permanent replacement for TEG.
  • Q3-20: European Commission to announce a “Renewed Sustainable Finance Action Plan”
  • Q4-20: European Commission to launch a legislative proposal for the review of the NFRD

Other topics to watch in sustainable finance

The EU taxonomy is not the only development to keep an eye on in the context of sustainable finance. Here are a few others:

EU Green Deal

The Green Deal announced in December sets the overall tone for the direction of the EU’s commitment to sustainability in the coming years. The deal includes a Green Deal Investment Plan and a Just Transition Mechanism. On 4 March, the European Commission unveiled its new Climate Law, designed to ensure net zero emissions in the EU by 2050, which was met with much debate. See a detailed road map and timeline of the Green Deal.


The European Commission recently opened a consultation on the NFRD and will look to further strengthening its requirements, including incorporating the recommendations from the Task Force on Climate-related Financial Disclosures (TCFD) and moving to make them mandatory.

European Banking Authority (EBA)

The EBA on 6 December 2019 published its Action Plan setting forth an outline for its deliverables and mandates to cover ESG-related factors and ESG risks between 2020 and 2025. The EBA focus on sustainable finance extends further to aspects such as short-termism, capital requirements, stress-testing, prudential requirements and ESG integration on banking activities.

European Securities and Markets Authority (ESMA)

ESMA on 6 February published its Strategy on Sustainable Finance, which will focus on a number of work streams such as single rulebook, supervisory convergence, ESG in credit ratings, risk assessment and outreach.

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