The Taxonomy Regulation and its Implementation

Abstract

The EU Taxonomy Regulation (TR), adopted in 2019, is a key milestone in defining legally sustainable activities. It should be viewed within the context of the climate and energy targets set by the EU for 2030 in order to become climate-neutral by 2050, and constitutes, along with the Sustainable Finance Disclosure Regulation (SFDR) and the Low Carbon Benchmarks Regulation (LCBR), the regulatory ‘trilogy’ implementing the CMU Action Plan in relation to sustainable finance. It substantially builds on the 2020 Report of the Technical Expert Group on Sustainable Finance (TEG), which developed the “EU taxonomy” classification system to determine whether an economic activity can qualify as environmentally sustainable. The system of its rules is anchored in the definition of six specific environmental objectives, which constitute the benchmark on the basis of which an economic activity can be assessed to qualify as environmentally sustainable and, hence, the degree to which a financial investment is environmentally sustainable is established. The main purpose of this Chapter is as follows:

First, it thoroughly analyses the subject matter and scope of the TR, with an emphasis on its environmental objectives. It sets out the primary EU law limits within which it applies, while also explaining its contribution to internal market-making as a harmonisation measure. Second, it examines the criteria for determining whether an economic activity qualifies as environmentally sustainable, while also delving deeper into the requirements of the technical screening criteria. Third, and in connection to the above, the Chapter assesses the Delegated Acts adopted on the basis of the TR and mentions those yet to be adopted. It also discusses the Commission’s Communications in relation to said Delegated Acts. Fourth, the Chapter presents in detail the disclosure requirements for environmentally sustainable investments, and sets out the role played by, inter alia, the Platform on Sustainable Finance and the Member State Expert Group on Sustainable Finance. Finally, it remarks on the impact of the TR so far and on the next steps forward, while also briefly commenting on TR-related litigation before the EU Courts, which is already under way.

Keywords: EU Sustainable Finance Law, Taxonomy Regulation, Sustainable Finance Disclosure Regulation, Low Carbon Benchmarks Regulation, Capital Markets Union, Action Plan on Financing Sustainable Growth, Corporate Sustainability Reporting Directive, Climate Delegated Act, Disclosures Delegated Act

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