Decryption on... the european taxonomy
Following the Paris Agreement, the European Commission introduced a strategy on sustainable finance.
One of the priority actions is defining a European taxonomy.
What does taxonomy mean in this context?
The aim of the EU taxonomy is to establish a uniform system for assessing, on the basis of common criteria, whether an economic activity is sustainable. The taxonomy will be implemented initially for environmental objectives, followed later by social objectives.
The regulation does not create an exhaustive list of “green” economic activities; instead, it sets out a general framework informed by six environmental objectives: reducing climate change, adapting to climate change, protecting water and marine resources, transitioning to the circular economy (including waste recycling), preventing and controlling pollution, and restoring biodiversity and ecosystems.
An economic activity is deemed as environmentally sustainable if it contributes substantially to one or more environmental objectives and if it is carried out in compliance with the minimum international social and labour standards.
The technical details used to assess whether an activity can be qualified as environmentally sustainable are developed by groups of technical experts as part of a future European platform on sustainable finance and by a committee of experts from the Member States. This work will be continued throughout 2020.
Three types of economic activity that can make a substantial contribution to reducing the impacts of climate change:
- Low-carbon-intensity activities, already compatible with the objective of a zero-carbon economy by 2050. Examples: zero-emission transport and reforestation.
- Economic activities contributing to the shift to a zero-carbon economy by 2050 (but which are not there yet). Examples: electricity production generating less than 100 g of CO2/kWh; cars emitting under 50 g/km of CO2.
- Economic activities that enable others to meet their objectives. Examples: the production of wind turbines and the installation of high-performance boilers.
Two types of economic activity considered as making a substantial contribution to the adaptation to climate change:
- Activities whose climate resilience is strengthened by integrating measures that serve to enhance performance amid climate change. Example: improving the capacity of soils to retain water in order to reduce cultivation yield losses following severe droughts.
- Economic activities that help other activities to adapt. Example: the production of satellites for weather and climate observation.
How extensive is the coverage of the taxonomy?
At this stage, the EU taxonomy is designed for investment products and portfolio management. It does not concern financing.
An investment will be considered as “green” if it finances one or more economic activities qualifying for the taxonomy.
Is the taxonomy obligatory?
The taxonomy is not obligatory. It does not entail the exclusion of non-sustainable economic activities and does not prohibit the use of other guidelines. But it does constitute obligatory guidelines for the development of the EU’s future Green Bond Standard and for the extension of the Ecolabel to retail investment products. It will become a reference for a substantial amount of reporting.
The Crédit Agricole Group is seeking to use the EU taxonomy as a reference in order to benefit from a more widely recognised methodology. In addition, the new green investment fund of Amundi/EIB, the Green Credit Continuum (GRECO), launched on 9 July 2019, will finance projects that must correspond to the EU taxonomy.
Similarly, the Crédit Agricole Group will make issues compliant with the EU Green Bond Standard.
What role is Crédit Agricole playing in the development of the EU taxonomy?
The Credit Agricole S.A. CSR Department is involved in numerous working groups (including those of the French Banking Federation and the European Association of Cooperative Banks). In parallel, it is ensuring that the implementation of the Group’s climate strategy is consistent with the taxonomy in all aspects. It is also coordinating projects at the Group relating to this subject (for example, the Group’s new non-financial reporting).
The Public Affairs Department of Crédit Agricole S.A. also participates in these working groups and brings the positions of the Crédit Agricole group to the European level (banking associations and European institutions); positions that it coordinates upstream with the experts of the various entities.
As a technical expert, CACIB is contributing to the work of the group of experts on the development of the EU Green Bond Standard.
What is the implementation schedule?
The Member States, the European Union and the players concerned will be obliged to comply with these requirements starting in December 2021. In the meantime, a delegated act will specify the key performance indicators to be respected by economic activities if they are to qualify as environmentally sustainable.