By Nathan Fabian and Tina Krajsek Samar

In October 2020, the European Commission set up the EU Platform on Sustainable Finance, a permanent expert group that advises the Commission in the future development of sustainable finance policies. Over 50 world-leading experts from business, financial industry, academia, civil society, and environmental groups were brought together to work on expert recommendations that will help move financial flows towards sustainable economy. During its first year, the platform has worked hard to support the Commission in its efforts to create a more sustainable future.

A classification system

The EU has been a frontrunner in addressing the challenges of the climate crisis and identifying the opportunities that the transition to a sustainable economy will bring. Developing the “EU Taxonomy”, a classification system that makes clear which investments in Europe are aligned to the EU sustainability goals, has been key. The taxonomy is a tool that will allow us to identify more easily the sustainable investments that we need to be putting our money into. The Taxonomy Regulation, which sets out the rules for this classification system, is now being complemented by detailed criteria. These criteria will map out the most sustainable activities that significantly contribute to key EU climate and environmental objectives.

The platform plays a key role in developing such criteria. Through its expertise and wide stakeholder representation, it provides technical and scientific advice to the Commission and allows for a reasoned discussion among experts, reflecting the various stakeholders’ views. The main task of the platform is to continue to develop and strengthen the taxonomy, incorporate new economic activities, and help markets put it into practice and use it on a day-to-day basis.

Progress so far

During its first year, the platform has focused on developing taxonomy criteria, advising on the usability of the EU Taxonomy framework and exploring whether and how to expand it further. To deliver this advice the platform formed four working groups.

Technical Working Group: this group has been developing recommendations on taxonomy criteria for activities that significantly contribute to EU environmental objectives - covering water, the circular economy, pollution prevention, and biodiversity & ecosystems. The advice will also cover a small number of economic activities and criteria related to the climate mitigation and adaptation objectives that have so far not been covered by EU law.

Subgroup on negative and low-impact activities: this has been looking into measures that could support financing the transition of economic activities that currently are "significantly harmful" for the environment. Recognising the transition of such activities to a level that at least does not cause significant harm could facilitate their financing, even if they do not actually get to the stage of contributing substantially to one of the EU climate and environmental objectives. For this, the group is looking into providing further clarity on both activities that are significantly harmful to environmental sustainability, and those that have no significant impact on it.

Subgroup on social taxonomy: this group has been looking into the potential advantages of developing a social taxonomy. This would be a classification system that could help investors identify investment opportunities that contribute to, for instance, ensuring decent work, enabling inclusive and sustainable communities and affordable healthcare and housing. The platform will provide advice on both the social objectives and governance aspect of such a taxonomy.

Subgroup on data and usability: this has been advising the Commission on the usability of the EU Taxonomy framework and criteria. The group provides feedback from financial market participants and financial and non-financial companies, regarding the practical implementation of the taxonomy framework.

After gathering stakeholder feedback on the draft proposals over the summer, the platform will deliver the advice from all the subgroups to the Commission later this autumn. This will feed into the Commission’s further work on the EU Taxonomy and sustainable finance.

Looking forward

After delivering its advice to the Commission, the platform will continue its work – advising the Commission on the further development of climate and environmental criteria for sustainable activities, on the usability and applicability of the EU Taxonomy, as well as on the possible development of the Taxonomy framework. The platform will also advise the Commission on the development of a robust monitoring framework to measure capital flows to sustainable investments.

In spring 2021, the platform also advised the Commission on how to encourage transition finance across the whole economy. The Commission drew on this advice in its renewed sustainable finance strategy, which was adopted this summer. The new Strategy for Financing the Transition to a Sustainable Economy mapped out areas where additional action is necessary.

Many paths to a greener society are needed, and fast. The platform will now continue to work closely with the Commission to create the environment we need for a dynamic transition to a more sustainable economy.   

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Nathan Fabian is Chair of the Platform on Sustainable Finance

Tina Krajsek Samar is a policy officer working on sustainable finance in DG FISMA