Update on Taxonomy and Tagging

The first Working Group which ran from January 2019 to February 2020, had two objectives: a) to provide energy efficiency related input to the Sustainable Finance Technical Expert Group (TEG) Taxonomy focusing on buildings and manufacturing, and b) Review existing practices on tagging energy efficiency loans and make recommendations on a standardised approach to tagging.  Thirty one members were recruited to the Working Group representing financial institutions and other stakeholders and over the course of the project five meetings were held, two surveys were conducted and a webinar to provide an update from the TEG was held. 

Several recommendations on the draft Taxonomy were made, including:

• use actual rather than calculated energy consumption 
• an absolute energy metric in KWh/sq.m/y was preferred over carbon but should be complemented with a relative reduction requirement.

On tagging the working group drew the following conclusions:

• Tagging is primarily driven by need for asset level data – to then obtain portfolio wide information
• Corporate loans are more frequently tagged, followed by residential and then commercial real estate – FIs focus on transactions with the largest ticket sizes first
• EPCs are a useful tool for understanding energy performance, even though energy consumption data is still considered necessary; tagging is usually focussed on jurisdictions with excellent data availability
• Green tagging is still a manual process and the process is considered very labour intensive.

The Working Group made a number of recommendations for additional interventions including:  

• Introduce public EPC databases in more European countries.
• Aligning green tagging efforts with the sustainable finance taxonomy
• Process standardization of tagging is the crucial next step
• Consider a standardized, open-source system for recording building physical data and energy consumption as well as details of interventions
• Publicly supported projects should require on-going measurement of energy performance in a form that aligns with the Taxonomy and the use of green tagging
• Assist companies in their disclosure obligations under the Directive 2014/95/EU (NFRD) via the development of templates and capacity building

The Working Group provided a useful additional point of contact between practitioners, both in finance and energy efficiency, and the TEG developing the Taxonomy. The research conducted on tagging can provide a starting point for additional work.