The Taxonomy Regulation: More Important Than Just as an Element of the Capital Markets Union

Abstract

On the basis of the European Commission’s 2015 Action Plan “on Building a Capital Markets Union” (CMU), as further specified in the 2017 “Mid-Term Review of the [CMU] Action Plan”, the European Parliament and the Council adopted on 27 November 2019 Regulation (EU) 2019/2088 “on sustainability-related disclosures on the financial services sector” (SFDR) and Regulation (EU) 2019/2089 “as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks”. The third – and probably most important – part of the related ‘trilogy’, which is also based on the Commission’s 2018 “Action Plan on Financing Sustainable Growth”, is Regulation (EU) 2020/852 “on the establishment of a framework to facilitate sustainable investment” (the so-called Taxonomy Regulation, TR). The objective of this legislative act (which, inter alia, also introduces specific amendments to the SFDR) is to establish uniform criteria for determining whether an economic activity qualifies as environmentally sustainable for the purpose of establishing the degree to which an investment is environmentally sustainable as well. It does not itself establish a label for sustainable financial products; the details of what constitutes an environmentally sustainable activity or product is being built-up through delegated acts to be adopted by the Commission, of which the first two will apply from 31 December 2021 and the other four from 31 December 2022. The main purpose of this Chapter, which contains a thorough analysis of the entire legislative act, is threefold:

First, briefly albeit systematically present the “system of rules” relating to the “core element” of the TR, namely the criteria according to which an economic activity will be considered environmentally sustainable and the six environmental objectives (the six types of economic activities which qualify as environmentally sustainable activities for the purposes of the taxonomy).

Second, analyse the TR’s field of application, covering measures adopted by Member States and by the EU that set out requirements for financial market participants or issuers in respect of financial products or corporate bonds that are made available as environmentally sustainable, financial market participants that make available (environmentally sustainable) financial products (applying to credit institutions only to the extent that they provide portfolio management services) and undertakings falling under the scope of the “Non-Financial Reporting Directive”, as well as analyse the disclosure requirements for environmentally sustainable investments, as set out in the TR.

Third, conclude with some considerations on how the core element of the TR will be of primary importance even for entities which are not covered by its scope of application, namely beyond the reach of the CMU project. These considerations will be based on the observation that the taxonomy system, as developed within the TR, will be used, inter alia, as a benchmark in the course of new rules pertaining to the micro-prudential supervision of several categories of regulated financial firms, including credit institutions, by virtue of other legislative acts which are sources of EU financial law.

Keywords: Taxonomy Regulation, Sustainable Finance Disclosure Regulation, Capital Markets Union, Action Plan on Financing Sustainable Growth, environmental objectives, environmentally sustainable economic activities, environmentally sustainable investments, substantial contribution to environmental objectives

JEL Classification: E50, E53, E58, G21, G28. K00, K23, K33