In times when we all need to step up and deliver more green, sustainable solutions, it is very welcome to find a common answer to what sustainable really is. This is helpful for companies wanting to contribute, for investors, watchdogs and other stakeholders wanting to evaluate the work and for all of us as consumers and employees wanting to push for change. Hence the EU’s Taxonomy, the world’s first-ever official classification system for environmentally sustainable economic activities. Like the Green Deal, it is part of EU’s efforts to become climate-neutral by 2050, with the 55% emissions reduction 1990-2030 that was just agreed upon.
When the EU Commission now, April 21st, launched the first two parts of the Taxonomy, for climate mitigation and adaptation, it tried to strike a balance between different actors. Not only different interests from member countries and businesses, but also different views from leading scientists on what is sustainable and not. How hard this is was proven by the first attempt from the Commission, which sparked an outcry from those wanting a more positive view on bioenergy – and those who wanted a more condemning tone, with similar outcries about nuclear power and natural gas.
In what was presented today, it became clear that there is no such thing as a clear, unanimous answer to what sustainability is. It is to a large degree political, and some issues are so contentious that they will block the rest of the work if dealt with. That is why the Commission decided to deal with nuclear power and natural gas at a later stage – most likely a wise move that ensures that the proposal will pass. It also changed the classification of hydro power and bioenergy & forestry from being transitional activities, to be seen as long term sustainable solutions.
The next step is that the Taxonomy is to be discussed by the European Parliament and the Council of Ministers. However, since it is a Delegated Act, what the Commission proposes stands unless there is a qualified majority against it – unlikely after the changes and omissions made. Then the Taxonomy is formally adopted at the end of May and will enter into force at the end of the scrutiny period of co-legislators (four months that can be extended by another two months). It will apply from 1 January 2022.
In the period up until then, work will be done in all sectors covered to ensure there is a joint and more precise understanding on what is seen as sustainable. In general terms, any given activity is to be significantly beneficial in at least one key aspect, and to do no significant harm in others – but as we’ve seen, the classification of long term or transitional also matters, as well as the opportunity to be seen as sustainable in the future even though not currently so.
Furthermore, a more detailed classification is often needed, with a work to be done at the national, member state level. For instance, the 15 percent of the building stock with the lowest energy usage are to be considered green, but given that national labelling and energy requirements vary, how this is to be counted in each member state has not yet been finalized.
About 40% of EU-domiciled listed companies, responsible for just under 80% of direct greenhouse gas emissions in Europe, will report based on the taxonomy. They (or we, since my employer Sweco is included) will aim to improve their sustainability score by doing what is considered sustainable and refrain from what is not. This will both be from free will and pushed by our investors and other stakeholders – the Taxonomy will streamline their demands. I also expect us to soon start seeing taxonomy-aligned products, not least on the investment side.
As has become clear by now, the taxonomy is a complex tool. We who will work with it need to read every line and to discuss it with peers to find a common understanding that we in some instances may find challenged by others (at the time of writing, the final version has not been published in all its parts). However, I disagree with those who claim that the EU Commission has failed us. It has by and large delivered the best possible answer – political and science-based in equal measures – to what sustainability looks like in the climate dimension. I don’t even bother to disagree with those who are against the whole concept of the taxonomy – it is here, whether we like it or not, and those who adapt the best, win.