Eurosif responded to the consultations of the EU Platform on Sustainable Finance regarding the Social Taxonomy and an extended framework for the Environmental Taxonomy.
Eurosif supports a Social and a Significant Harm Taxonomy but expresses reservations on the Intermediate Performance and the No Significant Impact categories, as the usability of the Taxonomy remains a priority for sustainable investors. Policies to price negative externalities and de-risk investments in sustainable investments will still be necessary to re-orient capital towards green and socially sustainable activities on a large scale. A science based green Taxonomy should remain the top priority. the main points are listed below:
On an extended Environmental Taxonomy
- A Significant Harm Taxonomy could help bring more transparency to financial markets by allowing investors to understand and report how their portfolios are exposed to economic activities not reconcilable with the objective of carbon neutrality by 2050.
- An Intermediate Performance category would cover a large set of activities with very diverse sustainability performance, thus potentially causing more confusion and increased risks of perceived greenwashing. Mitigating this risk would require more granular sub-categories that would probably need frequent updating, which would make the Taxonomy excessively complex.
- A No Significant Impact category is less relevant as it would cover sectors whose transition is not material to reach the climate objectives.
On the Social Taxonomy
- A Social Taxonomy would bring more transparency and understanding to investors on the social impact and performance of their investments.
- A vertical dimension would be useful to identify economic activities making a substantial contribution to social objectives. That said – we acknowledge the complexity involved in developing a list.
- On the horizontal dimension, for some sectors there may be no universally acceptable answer as to what should constitute substantial contribution and/or satisfy the DNSH criteria. Furthermore, identifying ‘socially harmful’ activities and developing a list of sectors automatically excluded from making a substantial social contribution might be highly controversial.
- It is crucial that the Platform coordinates this workstream with other EU initiatives on corporate governance and supply-chain due diligence, as well as with the upcoming work of the EFRAG on the Sustainability Reporting Standard and the revision of the SFDR social Principle Adverse Impact Indicators.
Further considerations
- Both the Social Taxonomy and Significant Harm Taxonomy could easily become politically very sensitive topics. Therefore, it will be vital for the Platform and the European Commission to be very clear in their communication about these tools, that they are not a covert harmonisation of social policies or energy policies and be realistic about the ability of these tools to re-orient capital towards sustainable investments.
- Both the Significant Harm Taxonomy and the Social Taxonomy will certainly not be enough to achieve the stated climate, environmental or social objectives. A social taxonomy should not be seen as an alternative to robust policies and funding by governments which will remain a key driver in meeting the social objectives. Equally, re-orienting international capital flows away from fossil fuel investments will require making sustainable investments financially more attractive, while making existing carbon intensive investments less attractive.
- The completion of a science-based Taxonomy on the climate objectives, as well as on the other environmental objectives, remains a priority. An Environmental Taxonomy departing too much from science risks also undermining the credibility of any extension to social objectives and significantly harmful objectives.
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