The Platform on Sustainable Finance (PSF), an expert group that is appointed by the European Commission to advise on making sustainable finance policies, has launched a new consultation on a series of proposed updates to the EU Taxonomy. The proposed updates aim to simplify and expand the classification system for defining sustainable economic activities according to global standards.
The proposed updates to the EU Taxonomy by the PSF may potentially significantly impact private market firms, asset managers, and impact investors by enhancing transparency and alignment with the sustainability criteria in the EU region to promote more informed decisions.
Let's explore the proposed updates by PSF on EU Taxonomy in detail.
About the EU Taxonomy
Implemented in July 2020, the EU Taxonomy is a framework that includes a set of standards made to classify and define the environmental and sustainable economic activities operating within the European Union. The framework establishes six climate and environmental objectives — climate change mitigations, climate change adaptation, and the sustainable use of marine and water resources and more.
Key aspects of the proposal of PSF on Taxonomy
- The PSF has included recommendations to enhance the usability of the EU Taxonomy and expand the scope of activities involved in it. In addition, the recommendations covered better monitoring of the capital flows into sustainable investments to ensure that financial resources are directed efficiently towards environmental projects.
- The PSF proposes to make the "Do No Significant Harm" (DNSH) criteria easier to apply for businesses looking to align their operations with the Taxonomy. In addition, it aims to provide practical guidance to streamline the DNSH criteria implementation. This proposal is in response to the feedback from stakeholders pointing out the complexity of the current criteria.
- The proposed updates seek to broaden the range of economic activities that are classified under the Taxonomy, including incorporating more activities and sectors contributing to sustainability, to expand the scope of companies to qualify for sustainable finance initiatives.
- The draft report that contains updated recommendations for EU Taxonomy is part of an ongoing effort by the PSF; the platform is also working on developing social taxonomy and extended taxonomy for supporting economic transitions.
Next steps
The proposals to update the EU Taxonomy were developed by comprehensive consultations with stakeholders, businesses, and regulatory entities operating in the EU. The consultations on proposals are open from January 8 to February 5, 2025. You can access the consultation here.
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