EU Taxonomy of green activities: final report from the TEG to the EU Commission released

On March 9^th, the Technical Expert Group on Sustainable Finance (TEG) published its final reports to the EU Commission on the Green Taxonomy. 3 documents were released: the “Taxonomy: Final report of the Technical Expert Group on Sustainable Finance” (67 pages), the “Taxonomy Report: Technical Annex” (591 pages) and the Usability Guide on the Green Bond Standard (52 pages).

These documents supersede the previous ones presented by the TEG in December 2018 and June 2019. They provide a consolidation and some significant expected complements, notably a batch of adaptation activities, new elements on the minimum social safeguards and a lot more on how to incorporate the Do No Significant Harm principle. However, the TEG has globally kept most concepts and frameworks as defined in the earlier versions of the taxonomy reports, thus providing strong continuity to market participants who have already started to work on their application of the taxonomy. On top of that, the TEG has made some additional recommendations, which will possibly be further developed by the Permanent Platform on Sustainable Finance - that will take over the TEG in September - to include socially-beneficial business activities, beyond environmentally-aligned ones, and to begin defining those that undermine the Paris Agreement (i.e. a “brown or red taxonomy”).

To comment the Final Taxonomy Reports in a single word, we would use the term of “toolbox”. The TEG has indeed provided market participants with rich guidance and examples about how to disclose the information required by the Taxonomy and use the Taxonomy itself. Explanations are provided about how to deal with interim period and lack of criteria, social minimum and do no significant harm assessments, challenges arising from activities outside the EU and classification system comparability.

In an in depth review of the TEG final reports, Natixis Green and Sustainable Hub is working on a user friendly analysis that will answer paramount questions spread across the following main sections: context & process, legal requirements, novelties and overall remarks.

This publication (layout below) will be published in the coming days so stay tuned on our website

CONTEXT & LEGISLATIVE PROCESS

• What does the TEG’s report contain?
• What TEG’s version report prevail?
• Is it the final version of the EU taxonomy?
• Is this mission complete for the TEG?
• When, and in what format will we receive the final technical screening criteria?
• Should we expect significant changes in the Delegated Acts?
• Has the legal status of the EU Green Bond Standard been decided?
• What are investors expected to do and by when?
• What are companies expected to do and by when?
• Is there a mandatory verification mechanism?

KEY UPDATES

• Are there any substantial changes to the methodology?
• Are there any substantial changes to the thresholds?
• In terms of activities related to water supply, treatment and reuse, there were no major changes for thresholds, but important modification of the DNSH requirements, notably with regards to biodiversity.
• Significant changes have been made to aluminium, forestry and manufacturing activities as well as for building construction and renovation
• Has the binary nature of the Taxonomy been amended?
• Were any new activities reviewed?
• What are the absent activities, and which ones were identified as a priority by the TEG?
• If your activity is not covered, what should you do?
• How to apply the EU Taxonomy at Project level?
• What are the options for issuers willing to abide by the EU GBS if technical criteria are only partially applicable or absent, for instance for water or biodiversity related objectives?
• Is there now clarity on the classification systems landscape?
• Have implementation or usability tools now being provided?

DO NO SIGNIFICANT HARM & MINIMUM SAFEGUARDS

• What are the main Regulations and Directives used in the completion of the do no significant harm assessment?
• What has been added in the minimum social safeguards?
• How do you demonstrate compliance?
• Is guidance provided for extra-territorial challenges?
• Is the assessment practical and feasible?

OVERALL REMARKS – WILL IT SUCCEED: OUR OPINION

Stringency is assumed and backed by the consistency with the climate objectives of the European Union

TOWARDS TAXONOMY KPI-LINKED BONDS?