« Essential to mobilize more public and private funds, to achieve the objective of European carbon neutrality by 2050 » green taxonomy, is the first global classification system for environmentally sustainable economic activities (the first two objectives of which will be launched at the end of 2020). However, we can already imagine that its application for investors will be time consuming and complex; more reasons to welcome any simplification tool.
Meeting Sustainable Development Goals (SDGs), the Paris Agreement commitments and other environmental goals will require substantial investments far beyond what the public sector can muster.
It cannot be repeated enough, mobilising and re-directing private capital is necessary for meeting EU’s climate, environmental and sustainability commitments At least EUR 180bn of additional investment is needed each year to help Europe respond to the climate mitigation challenge alone.
Through financing or investment decisions, and through stewardship, investors can influence the decisions taken by corporations and other issuers of securities. These decisions have a direct impact on whether, and how, policy goals like the SDGs and the Paris Agreement are met.
The EU taxonomy is intended to reshape the responsible investment landscape in Europe – both at corporateand institutional level – and to accelerate the reorientation of capital towards the objectives of the Sustainable Finance Action Plan of the European Commission.
Developed on the one hand to help large companies plan and report on their actual transition in line with EU environmental objectives, the taxonomy disclosure obligations encourage communication through reportingon progress made .
On the other hand, on the investor side, the PRI recalls that by the end of 2021,
“investors that offer funds in Europe described as “environmentally sustainable” will need to explain how, and to what extent, they have used the taxonomy in determining the sustainability of the underlying investments.
They must also disclose the proportion of underlying investments that are taxonomy-aligned as a percentage of the investment, fund or portfolio.”
As expected, the first results of the taxonomycase studies with stakeholders underline the heaviness of this methodology, but fortunately, it is also recognized for its relevance and usefulness when it comes to deciphering the scorings of financial data suppliers and ordinary grenwashing.
«Although the detailed analysis and internal application of EU taxonomy takes a long time, it is useful to understand all the pitfalls. This should help to assess the robustness of the approaches taken by different data providers.»Comment from a PRI case study participant
In this consideration, Vigeo Eiris, a subsidiary of Moody’s since 2019 and an international rating agency specializing in the analysis of social, environmental and governance factors, has released the beta version of its Taxonomy Alignment Screening tool.
For this specialist, a new product facilitating the reporting of investors on the alignment of their investments with the EU taxonomy was essential.
Their solution wants to offer investors a transparent and comprehensive view on the three components required in order to identify Taxonomy Alignment; contribution to defined environmental objectives, compliance with the Do No Significant Harm principles and compliance with the Minimum Social Safeguards principles.
Vigeo Eiris’ Taxonomy Alignment Screening is meant to help investors to integrate taxonomy considerations into their investment processes. The final product will be released in January 2021.
«By making our beta version widely accessible, we aim to facilitate the kind of dialogue recommended by the PRI and support investors in preparing for implementation.»Michael Notat – Executive Director, Investors at Vigeo Eiris
« Taxonomy integration is a big undertaking and commitment for investors. We are committed to providing the market with high quality, granular datasets that support investors in the integration, execution and reportingon Taxonomy elements and the rapidly changing ESG environment in Europe. »Emilie Beral, Executive Director – Methodology, Innovation and Quality at Vigeo Eiris
As the rapporteur of the Committee on the Environment, Sirpa Pietikainen, said,
«the taxonomy of sustainable investment is probably the most important development for finance since accounting. It will be a game-changer in the fight against climate change. Greening the financial sector is a first step for investments to support the transition to a carbon neutral economy ».
The European taxonomy project is ambitious, and will serve as an international benchmark. Tools facilitating its application will however undoubtedly be necessary to quickly get the stakeholders on board, and broaden its application (which to date is intended for companies with more than 500 employees, for organizations already required to provide a declaration of extra-financial performance (DPEF) under the Non-Financial Reporting Directive, and to financial market participants, financial supervisory institutions (such as central banks) and all Member States when establishing public measures, standards, labels for green financial products or green bonds).
Article: Joana Foglia