Taxonomy Regulation – Consultation Launched on Draft Technical Screening Criteria

On 20 November 2020, the European Commission published a draft Delegated Regulation relating to the EU’s “Taxonomy Regulation”1, and launched a public consultation requesting feedback.  The Delegated Regulation will be a very significant addition to the EU’s sustainable finance regime, as it begins to fill in the detail of how we determine whether certain economic activities qualify as “sustainable” for the purposes of the Taxonomy Regulation.

By way of background, the Taxonomy Regulation establishes the framework for a taxonomy of environmentally sustainable activities, determined by reference to the extent of their contribution to specified environmental objectives and the satisfaction of technical screening criteria (“Screening Criteria”).  It is expected to play a crucial rule in the movement of EU and global markets towards a more environmentally sustainable model.  The Delegated Regulation (and in particular its annexes) specify the Screening Criteria by reference to which an economic activity will qualify as contributing substantially to the following environmental objectives:

  • climate change mitigation (Annex I)
  • climate change adaptation (Annex II).2

Each Annex also sets out the Screening Criteria for determining whether an economic activity causes “no significant harm” to any of the other environmental objectives specified in the Taxonomy Regulation (this being another requirement for classification as sustainable).

Each of the Annexes specifies the applicable Screening Criteria for the following nine areas of economic activity:

  • agriculture and forestry;
  • environmental protection and restoration activities;
  • manufacturing;
  • energy;
  • water supply, sewerage, waste management and remediation activities;
  • transport;
  • construction and real estate;
  • information and communication; and
  • professional, scientific and technical activities.

What happens next?

The feedback period ends on 18 December 2020 with a view finalising the Delegated Regulation during 2021 so that the provisions of the Taxonomy Regulation relating to the climate change mitigation and climate change adaption objectives, and the relevant Screening Criteria, can apply from 1 January 2022.  For affected parties (and the majority of financial market participants and their counterparts are likely to be affected directly or indirectly) it would be advisable to consider the suitability of the draft Screening Criteria now and to provide feedback to the Commission on any areas of concern.

  1. (EU) 2020/852.
  2. The Taxonomy Regulation specifies six environmental objectives in total but the Commission decided to concentrate first on the two mentioned here on the basis of the urgent need to mitigate and adapt to climate change.

This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.