I want to be brief in my opening remarks and to say that this work that we are all involved in is quite groundbreaking and very important, so it’s important that we have a good dialogue on the specifics.
And indeed since the very start of my mandate here some months ago, there has been a huge focus on the financial system and how we engineer or re-engineer it to meet the demands of sustainability for the future.
And there is a realization that every sector of our society and our economy will have to be transformed in quite a short period of time, and we have to have all the financial instruments to allow the system to do that.
Equally the transformation requires finance, and that’s why we have this conversation today.
Because without finance and a financial system re-oriented towards sustainability - we cannot achieve our objectives.
Now to the Taxonomy. This really underpins our entire sustainable finance agenda. It is ground-breaking and a world first.
And you all know it has not been an easy task to get to this place. I was in the Parliament when it passed through on that side of the House, and I find myself here now in the implementation around delegated acts.
We published the first draft in November last and I want to thank those who collaborated with us and engaged with us to get us to where we are today, with the first delegated act on climate adopted by the Commission for scrutiny by Parliament and by Member States.
[History of the Taxonomy]
A brief history of how this has all happened, we take a step back.
Because in 2016, the European Union signed up to the Paris Agreement. As you know, the main aim is, to limit the global increase in temperature.
To reach that goal, the Agreement recognised the need to make finance flows consistent with a path towards low greenhouse gas emissions. And we are not there yet, to say the least.
So in other words, the Paris Agreement underpins the entire sustainable finance agenda.
And we as policy-makers, it is our responsibility to give the market clarity on how to achieve that transition to sustainability.
So the Commission in 2018 published the first Action Plan and then the draft legislative proposal on the Taxonomy Regulation providing a framework to facilitate sustainable investment.
There followed about a year and a half of debate and negotiation with co-legislators, and agreement finally reached at the end of 2019. And this regulation entered into force last year.
[The role of the Parliament]
The European Parliament played a key role during all of this process, helping the Taxonomy become more useable, broader and rigorous.
The Parliament added an obligation for companies covered by the existing Non-Financial Reporting Directive to publish information on the extent to which their activities align with the Taxonomy. And as you know this NFRD will soon become the Corporate Sustainability Reporting Directive.
The Parliament also added an obligation for financial market participants to disclose to what extent financial products fund activities aligned with the Taxonomy.
Along with the Council, the Parliament also added extra conditions for activities to qualify as aligned with the Taxonomy, which will help avoid greenwashing.
And the Parliament was key in broadening the Taxonomy to include “transitional” and “enabling” activities.
So all of this contributed to the Taxonomy Regulation: which is a classification system for economic activities that make a substantial contribution to specific EU environmental goals, without doing significant harm to other environmental goals that we have.
So basically it is a tool, and it is a tool that the market wants - to help finance flow to activities that support the transition to a carbon-neutral economy and support the European Green Deal.
But it not mandatory, and I stress this. It is not a mandatory list for investors to invest in – but it is a powerful tool that provides a guide to activities that will help us reach our climate and environmental goals.
[First Delegated Act]
So now briefly to this first Delegated Act, which we will debate today. The focus of the Delegated Act is activities that make the biggest contribution to climate change mitigation and adaptation – as requested by the Parliament and the Council.
So we’ve focused on carbon-intensive sectors, where reducing emissions can make a really big difference to meeting our climate goals. And we’re also looking at key activities for resilience to climate change.
The Act covers some 170 economic activities, activities of about 40% of EU listed companies in sectors responsible for nearly 80% of direct greenhouse gas emissions in Europe.
Sectors from energy, forestry, manufacturing, water, sewage, transport, ICT, construction, insurance, education and the arts.
So this Delegated Act identifies:
- Green activities. This means the best available low carbon activities – so for example, renewable energy such as wind and solar.
- These activities need to make a substantial contribution to our climate goals – recognizing the huge task that we have already to meet our Green Deal goals. And these are tough criteria, sometimes going beyond EU sectoral policies, because we have a huge task ahead of us.
But we know that not all activities and sectors are there yet, and we want to help them to get there. And as I noted, the Parliament was key in this part of the Taxonomy Regulation.
- So the Delegated Act identifies enabling activities that allow transformation in other sectors.
- And these are activities that directly enable others to make a substantial contribution to an environmental objective.
- So another example would be manufacturing renewable energy technologies, installing energy efficient materials in buildings or research into materials for stronger flood defences.
- And finally, the Delegated Act identifies transitional activities.
- These are activities where low-carbon alternatives are not yet available – in technological or commercial terms – where emission levels represent the best performance in the sector or the industry.
- So for example, this includes best-in-class cement manufacturing.
- There are strict limits, including that these activities do not get in the way of developing low-carbon alternatives or do not lead to lock-in of carbon-intensive assets and indeed that they are consistent with the 1.5 degree pathway.
[What’s not in the Delegated Act]
Let me say briefly what’s not in the Delegated Act, and we may discuss and debate this today.
As you will be aware, it does not include gas, nuclear agriculture, and some manufacturing sectors.
In these cases, assessments and policy developments are ongoing and we will work on further delegated acts.
For example, on agriculture, here we have decided to wait until there is agreement on the reform of the Common Agricultural Policy, and my expectations are that that will happen soon, and then we can take on board agriculture.
I think on nuclear, you will be aware that we are following what the co-legislators set out for us, so an ongoing assessment of nuclear activities.
We have received the JRC report. And we are expecting two further reports from nuclear experts and environmental experts, and when we have all of that scientific evaluation, we can then make decisions based on that evaluation from all of this process.
We are expecting this all to come to fruition towards the end of the summer. As I say, further decisions will be based on the results of all of those assessment, consistent with the Taxonomy regulation.
On gas, we will consider including certain activities within the legal limits set by the Taxonomy regulation, and based on scientific expertise.
And we may also need to consider legislation to recognise the role of gas in facilitating the switch from coal and oil.
Of course there will be a further separate delegated act for activities that make a substantial contribution to the other four environmental objectives in the EU Taxonomy Regulation:
- Water and marine resources
- Circular economy
- Pollution prevention
- And biodiversity.
The work of the Platform on Sustainable Finance will be key to help us develop these future delegated acts, and they will present their reports, again after the summer.
I really want to emphasise this afternoon that not being on the list does not mean that an economic activity is unsustainable.
We simply couldn’t develop criteria for every single sector where activities could conceivably make a substantial contribution.
And I think in that respect it’s absolutely important for us all to understand that the Taxonomy is a living document: it will be developed gradually over time, as the science may evolve and the technology and our understanding of sustainability. So this is a really key part of this afternoon’s presentation.
As I said, we will have more delegated acts, or revise existing ones, to include other economic activities from different sectors where it becomes relevant and feasible to integrate them into the EU Taxonomy.
And for all of these Delegated Acts, of course I look forward to working with colleagues in the European Parliament.
[What does it mean for sectors that are in?]
For sectors that are in the Delegated Act, companies with relevant activities can highlight to what extent their activities align with the taxonomy already, as well as any plans they would have to reach alignment.
This will help companies to reach investors who want to invest in genuinely green activities. This improved transparency will significantly lower the costs for identifying sustainable economic investment, and help companies tap green capital.
You will be aware that there is a huge appetite amongst investors for environmental information and sustainable investment, and this has increased significantly since the start of the COVID-19 pandemic.
In the public consultation for our Renewed Sustainable Finance Strategy, which will be published later in the summer, we asked how likely it would be for stakeholders to use the EU Taxonomy in their investment decisions.
More than 100 organisations noted that they currently market sustainable financial products. Over three quarters of these said they were likely or very likely to use the EU Taxonomy.
In closing, we know that Europe wants to be the first climate-neutral continent by 2050 – and these targets have been enshrined in law, as you indeed all are aware.
But this is more than just wanting to be first – in my view it is essential that the EU, leads the way in the fight against climate and environmental damage.
Our task now is to turn these goals into actions.
And this is where the Taxonomy comes into play. It is a first step, but a really important step, to help us transform our economy and our society.
And I look forward to working with you as we continue to develop the Taxonomy over time to meet all of our objectives.
I do hope that I can count on your support, and indeed I now look forward to my exchange of views with you this afternoon on what is a groundbreaking piece of work that you in the Parliament led on, and indeed where the eyes of the world are now looking at.