Applying the EU Taxonomy – lessons from the front line
The EU’s Taxonomy as a robust mechanism for monitoring for climate-relevant spending.
October 28, 2020
The EU Taxonomy should always be applied to identify green investments in the EU’s next long-term budget and recovery package, according to our new report launched under the lead of Climate & Strategy on October 28 2020.
The EU is planing a historic investment in its economy through a EUR 1.85 trillion budget, with around a third of the budget earmarked for climate expenditure. The study, titled “Applying the EU Taxonomy”: Lessons from the Front Line, provides strong evidence of the EU’s Taxonomy robustness as a mechanism for monitoring for climate-relevant spending.
The study shows that:
EU Member States can already use the EU Taxonomy to ensure that the climate share of their projects in all EU and co-funded areas will fulfil the European Court of Auditors’ call for a credible climate action tracking methodology and for avoiding greenwashing.
The Rio Markers – the existing climate tracking system used for EU funds – are imperfect, can inflate climate action percentages and doesn’t align with the definitions increasingly used in the private sector, whose money is required for co-investments.
No climate tracking system can allow for greenwashing, nor include fossil fuel projects that will quickly become stranded assets as Europe moves to a net-zero emissions economy.
We shine a light on the practical exercises and evidence for applying the EU Taxonomy to define climate contribution across all EU Funds. Its findings are based on a review of 1,000 shovel-ready investment projects across the 27 EU Member States, and through a line-by-line analysis of the investment categories identified in the European Structural and Investment Funds.
The report provides advice to EU and national officials as well as sustainable finance practitioners based on the analysis of real-life applications of the EU’s technical expert group (TEG) threshold recommendations for climate mitigation and adaptation. In three sections, it provides an introduction to the climate taxonomy challenge, the lessons learned from practical applications of the EU Taxonomy, and a direct comparison of EU Taxonomy with the Rio Markers.
As a conclusion, the report recommends the EU Taxonomy as its preferred climate tracking tool for reference in the legislation on all financial instruments in the Next Generation EU and the EU budget (MFF). EU climate ambition needs a credible climate tracking system, especially need to deliver on new climate objectives for 2030.
We thank members of the ECF’s Green Recovery task force for valuable contributions and comments (Astrid Manroth, Sarah O’Brien, Sebastien Godinot, and Markus Trilling).
Regarding the Annex (“Linking Rio Markers to the EU Taxonomy“), we thank Christina Anselm from Frankfurt School of Finance for extremely helpful input.
“We show how the EU Taxonomy can upgrade the current climate tracking method by adding a science-based footing, and only defining investments as ‘green’ if they substantially contribute to climate neutrality.”
Malte Hessenius (Analyst at Climate & Company)
“The EU Taxonomy is new, and greatly improves on the Rio Markers. It will more easily align public and private investments to deliver more climate and economic benefits in the COVID-19 -recovery.”
Peter Sweatman (CEO of Climate Strategy & Partners)