After the controversial inclusion of gas and nuclear energy as sustainable economic activities under the Taxonomy Regulation last year, the concretisation of the regulation is picking up speed again. Currently, the EU Commission is discussing the further development and expansion of environmentally sustainable aspects of the classification system. Social sustainability is still not an issue.
With the Taxonomy Regulation, a comprehensive and detailed set of rules was created to steer private capital flows towards sustainable investments. A well-designed taxonomy would also help to prevent greenwashing as much as possible. Economic activities are classified as environmentally sustainable under the Taxonomy Regulation if they make a substantial contribution to at least one of the six defined environmental goals, while not significantly harming any of the remaining environmental objectives. Science-based requirements for the fulfilment of these substantial contribution criteria are laid down in the form of delegated acts in the “technical screening criteria”. So far, these are only available for two of the six environmental goals, namely climate change mitigation and climate change adaptation.
The EU Commission is currently discussing the technical screening criteria for the remaining four goals, which relate to water protection, circular economy, pollution reduction and biodiversity. It has scheduled a four-week feedback period on its first draft on 5 April 2023. The adoption of the proposal by the EU Commission is then planned for the second quarter of 2023. In addition to the first draft of an assessment catalogue for the four outstanding environmental goals, the EU Commission is currently also announcing the consultation on the existing criteria for the climate change mitigation and adaptation targets. Both are to be based on the findings and recommendations of the associated reports prepared in March und November 2022 by the Platform on Sustainable Finance.
This means that the gradual implementation of the taxonomy is picking up speed again. In principle, a precise formulation and further development of the Taxonomy Regulation to promote environmentally sustainable investments and to prevent greenwashing is to be strived for. However, there are still considerable hurdles to overcome.
Fierce disputes around natural gas and nuclear power
There was fierce criticism of the highly questionable classification of gas and nuclear power as taxonomy-eligible economic activities, as decreed by delegated act. Several lawsuits have been filed with the European Court of Justice, including one by Austria. Another complaint has recently been received from several NGOs - including Greenpeace and WWF EU - who are also opposing the inclusion of nuclear power and natural gas in the taxonomy. René Repasi, MEP, also filed a complaint, arguing that such a highly controversial and far-reaching measure should also be negotiated in the European Parliament and that the EU Commission had exceeded its competences by adopting a delegated act.
Social sustainability still in its infancy
The consideration of social aspects in the Taxonomy Regulation currently takes place exclusively through a minimum level of social protection, the so-called minimum safeguards. These are based, among other things, on OECD Guidelines for Multinational Enterprises, the UN Guiding Principles on Business and Human Rights and the ILO Core Labour Standards. The aim is to ensure that ecologically sustainable investments do not simultaneously violate fundamental social and human rights. Furthermore, an increasing demand for ESG-compliant financial investments can be observed, which require an assessment beyond purely environmental factors. The Platform on Sustainable Finance produced a Report in October 2022 on how to apply these minimum safeguards. If implemented appropriately, the minimum safeguards can certainly provide a minimum level of social protection.
However, sustainability goes beyond minimum protection and legal requirements. As a counterpart to environmental taxonomy, social taxonomy was therefore also considered, for which the Platform on Sustainable Finance also drafted a proposal. Social taxonomy could relate to employees (e.g. promotion of collective bargaining, good working conditions, quality education), consumers (e.g. quality healthcare) and communities (e.g. inclusive growth). As with environmental taxonomy, social taxonomy depends on design. If prudent, it has the potential to deliver social improvements and prevent social washing. Moreover, a concentration of sustainable investments only on ecological aspects could be compensated. Under no circumstances, however, should there be pressure on public services, and trade unions should definitely be involved in the elaboration of a social taxonomy. A committed debate on this was also held in the European Economic and Social Committee in the course of drafting an opinion.