The devil is in the details. The technical specifications of taxonomy-related disclosures will have a major influence on whether the EU Taxonomy will deliver on its objectives which are: 1) to define what investments are sustainable, 2) channel finance to sustainable activities, as well as those supporting the transition towards the sustainable economy, and 3) prevent greenwashing.
We are broadly supportive of the proposal by the European Commission for the Delegated Act (“DA”) on Art 8 of the Taxonomy Regulation (“TR”) that will define and specify the methodology and the content of the reporting that companies within the scope of the Non-Financial Reporting Directive (NFRD) will need to deliver.
However, we believe that several improvements are needed to ensure the robustness of the final DA and to prevent greenwashing. In our feedback, we also highlight those of the Commission’s proposals which we believe are crucial to keep.
- We are broadly supportive of the proposal by the European Commission for the Delegated Act (“DA”) on Art 8 of the Taxonomy Regulation (“TR”).
- To ensure credibility of taxonomy-related disclosures and prevent greenwashing, we call for an external verification / assurance and a board-level approval of all taxonomy-related disclosures, including a verification of the CapEx and OpEx plans.
- CapEx KPI for non-financial companies is an important future-oriented metric. We therefore support including the proportion of the capital expenditure which is part of a plan to expand Taxonomy-aligned economic activities or to allow Taxonomy-eligible economic activities to become Taxonomy-aligned (‘CapEx plan’) in the CapEx KPI. However, an approval by the company board of the CapEx / Op/Ex plan is the key prerequisite and safeguard. Board approval means commitment which is necessary to prevent greenwashing.
- We believe that the indicators by financial companies should provide a comprehensive view of all investments / all balance sheet assets of the financial company.
- Sovereign exposures should be included in the denominator and, in some specific cases, in the numerator (e.g. green bonds to be issued by sovereigns complying with the EU Green Bonds Standard (EU GBS) expected to be developed in the coming months1).
- We also suggest a specific approach for the treatment of derivatives, which should be always assessed by their nature, and by default included in the denominator that should represent all investments.
- KPIs for financial companies: we are calling for requiring disclosure of both separate and aggregated ratios based on turnover, CapEx of the underlying investee companies. The aggregated ratios should be calculated as a weighted average ratio composed of the taxonomy-aligned turnover and CAPEX. The respective weights should reflect the relative proportion of turnover and CAPEX. We believe that such an approach would properly reflect underlying companies’ taxonomy-alignment and prevent greenwashing.
Please see our full response below for all recommendations and explanations.