Sustainable Finance: EU Taxonomy

The EU Commission aims to mobilise the investments needed to implement its Green Deal using its Sustainable Finance Agenda. At its core is the so-called EU taxonomy, which defines criteria for sustainable economic activities.

The basic concept of sustainable financing - if properly implemented - can contribute to making the capital market more transparent and, consequently, incentivise investors and promote the ambitious transformation of the economy. That is why the guiding principle of this taxonomy, i.e.: to define reference values for sustainable activities with the help of concrete criteria, is fundamentally sensible.

Sound concept fades into the background

If we are to transform the economy successfully, we must provide those industries which are particularly energy intensive or find themselves at the start of their transformation with access to the sustainable capital market. This is where we can take the biggest steps forward in terms of greenhouse gas neutrality. However, the path to sustainability is not described in the taxonomy’s current design. It provides us with technical criteria which only tells us whether an activity is already considered sustainable. Too much focus is taken away from the basic concept of financing the transformation of the economy, and prestige is given to already sustainable activities. We should focus the criteria on activities that are transformational in order for us to achieve the Green Deal’s ambitious goals. This ensures that companies are meaningfully supported on their path to transformation, regardless of their starting position.

Promoting innovation through openness to technology

Innovations and new technologies are essential when it comes to making production processes more sustainable and efficient. We need to create the right conditions in Europe so that companies are given every opportunity to contribute to sustainability by means of new, innovative processes. This includes being open to technology. We also reject the concept of blanket bans on substances, as it is sometimes the case that they make complex and sustainable production processes possible in the first place.

Taking a holistic view of value chains

The existing version of the taxonomy mostly specifies criteria for end products. It fails to consider upstream processes sufficiently and classify the manifold technologies as taxonomy-capable in a clear manner. This means that those companies that produce intermediate products for sustainable products are not covered and therefore not promoted. The aim, however, must be to promote all those who contribute to sustainable economic activity. That is why we need to take a holistic view of the value chains so that the taxonomy can function as a steering instrument.

THE VCI IS CALLING FOR THE FOLLOWING

• Involve and promote all those involved in the transformation process ("enablers")
  The taxonomy must take in account the companies which produce essential intermediate products for sustainable transformation. They will also need to be open to technology as well as current scientific thinking.
• Practicable implementation for companies
  Our goal must be to support companies on their way to greater sustainability via sustainable financing. We will need, inter alia, clear and proportionate reporting requirements that also take competitiveness in the international arena into account, and also keep additional costs that arise from this as low as possible. The reporting obligations must be SME-friendly by design.
• Uniform and internationally compatible rules in Europe
  The European Sustainable Finance Strategy should focus on the international compatibility of the taxonomy in order to achieve market transparency for companies that operate globally.