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Sustainable Finance Taxonomy Regulation

The EU Sustainable Finance Taxonomy is a classification system established by the European Union to define environmentally sustainable economic activities.

The EU Sustainable Finance Taxonomy aims to:

Direct investments towards sustainable projects

Guide financial flows towards activities that contribute to the EU's environmental goals, such as mitigating climate change and protecting biodiversity.

Promote transparency and prevent greenwashing

Provide a clear definition of "sustainable" to help investors make informed decisions and prevent companies from misleading them about their environmental impact.

Support the transition to a low-carbon and environmentally friendly economy

Encourage businesses to adapt their operations towards sustainability by outlining the criteria for economic activities to be considered environmentally friendly.

Six environmental objectives

The taxonomy defines six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.

Technical screening criteria

For each objective, a set of specific technical screening criteria is established. These criteria determine whether an economic activity can be considered "sustainable" in the context of that objective. These include factors like:

  1. Do No Significant Harm (DNSH) principle: The activity should not significantly harm any of the other environmental objectives.
  2. Substantial contribution: The activity should make a significant contribution to at least one environmental objective.
  3. Minimum safeguards: The activity needs to meet minimum social and governance safeguards.

The timeline and milestones for implementation of the EU sustainable finance taxonomy:

June 2020

Taxonomy Regulation came into force, establishing the framework.

April 2021

Delegated Acts finalised for first two objectives - climate change mitigation and adaptation.

Jan 2022

Climate Delegated Acts applied for 'large public interest companies'.

Jan 2023

Financial market participants must comply with climate Delegated Acts for disclosures.

Jan 2023

Extended taxonomy reporting for 'large public interest companies'.

Jan 2024

Possible application date for the next four environmental objectives.

End 2024

Review of current rules and expansion to social objectives under discussion.

2025 Onwards

Ongoing reviews to update technical criteria and implementation.