The Rise and Fall of the EU Taxonomy: Lessons in the Implementation of Sustainability Accounting and Accountability

Abstract

The initial purpose of the EU Taxonomy was to establish a framework that defines environmentally sustainable economic activities within the European Union (EU), designed to address the urgent need for a common language and criteria to identify and classify sustainable investments. Its offspring, the EU-CSRD and European Sustainability Reporting Standards (ESRS), would aim to provide clarity and transparency to investors, businesses, and policymakers regarding the environmental performance of economic activities. Lofty goals notwithstanding, the daunting task to catalogize all business activity in terms of its environmental and social footprint, has been branded as a failure. The regulatory capture by business groups and member state interests has led to a dilution of initial targets, that it no more satisfies the requirements on which the EU Taxonomy was originally based. The way forward is unclear and entails further time-wasting, or delegating pressing environmental needs to private standard setting bodies. Initiatives led by the ISSB through the IFRS foundation, SASB and the TCFD, to develop globally recognized sustainability reporting standards, provide for a viable and more effective, alternative regime.