Financial officials of EU governments met in Brussels on Tuesday to discuss whether to broaden the taxonomy at the heart of the union’s Sustainable Finance Action Plan (SPAP). Some states, led by France, want it to be not just a label for the “green niche” but a guide to wider efforts towards a healthier economy.
The Romanian presidency, eager to secure agreement in the European Council of governments before the summer, is trying to reconcile the French scheme with the original proposal from the European Commission.
But the Romanian draft, seen by GlobalMarkets, contains a still bolder suggestion: that the taxonomy should cover all economic activities, grading them from green to brown, like the energy performance certificates on household appliances.
Many see the taxonomy as the SFAP’s flagship policy — although critics regard it as a cumbersome distraction. It is intended to answer the question “what is green?” The EU hopes an official taxonomy of sustainable economic activities would accelerate investors’ allocation of capital to greening the economy.
But the taxonomy has proved difficult to legislate. Some countries are dragging their feet. Others want the Commission proposal to be made more ambitious. “There are a lot of unknowns. It’s such a complicated file,” said a lobbyist who follows the process.
This echoes battles in the European Parliament in February and March. Conservative MEPs threw out stronger safeguards for the environment and society, proposed by left wingers.
It is not simply that progressives want a stricter taxonomy, conservatives a looser one. The boldest idea is to make a fully inclusive taxonomy, evaluating the sustainability of all activities. Conservative MEPs rejected this as bureaucratic.
However, many are concerned that if the taxonomy is merely a list of “deep green” activities such as wind power, it will cover only a fraction of the economy and be of little help.
At a Council working group meeting on April 9, France proposed expanding the taxonomy to provide evaluations of all activities that contribute to one of the Commission’s six environmental objectives (such as on climate change, water, pollution) and meet minimum safeguards on human rights.
Originally, only activities that made a “substantial” contribution, without “significantly harming” any of the other five objectives, would have been listed.
In this broader taxonomy, France wants impact assessments of how much a given activity helps or harms each objective. Results would be given as a grid, with one of five grades for each objective. Based on these results, the activity would be deemed sustainable or not.
Romania’s public finance minister Eugen Teodorovici proposes combining both approaches, so that the taxonomy would stipulate two categories of greenness: “fully environmentally sustainable” and a wider band of “transition activities”.
But the most radical element of the Romanian proposal is to “further develop the grid… to classify those activities that are not eligible for either of the categories outlined in the regulation and make them available to the market in a non-binding manner”.
This is tantamount to the “full taxonomy” of all activities favoured by NGOs such as the WWF.