Alignment with the EU taxonomy of sustainable economic activities is unlikely to be a material factor informing investment decisions in the near future, Eurosif has said as part of a call for a more “honest” debate about the framework.
In a paper published today, the organisation, a partnership of European national sustainable investment forums, said there was no evidence to support claims that the taxonomy would cut off certain companies’ or entire industries’ access to financial markets.
This had in recent months been argued by “many stakeholders, policymakers, and some EU member states”, it said. The Commission recently consulted on the taxonomy delegated act, with many responses calling for the Commission to stick to a robust, science-based approach to setting the criteria.
In its paper, Eurosif emphasised that the taxonomy was a transparency and reporting framework and did not impose any investing or lending obligations on financial institutions.
Although there could over the years be a gradual differentiation in the cost of capital between companies depending on their taxonomy alignment, this was likely to be caused by policy instruments that have a more direct impact on companies’ revenues and costs, such as the EU Emission Trading System, rather than the taxonomy, Eurosif said.
It also argued that investors would not exclusively invest in economic activities aligned with the taxonomy because of data gaps and because they needed to generate sufficient investment returns.
Citing research from McKinsey, it said that nearly half of the investments needed to achieve the EU’s net-zero emissions target were currently not profitable, and therefore of little or no interest to companies and private investors. This was the real problem, not the taxonomy, according to Eurosif.
Still important though
Although it played down the direct impact of the taxonomy, the organisation said it was important, in that the transparency it generated would gradually inform investors’ and companies’ investment decisions and help companies and investors understand their exposure to potential stranded assets.
“This is why this transparency tool should be science-based to be as objective as possible,” Eurosif wrote. “We cannot afford that it sends the wrong long-term investment signals to companies and investors.”
Speaking to IPE, Eurosif executive director Victor Hoon said many of the criticisms levelled at the taxonomy were unfair, or at least based on misunderstanding, with it at times almost sounding like a “supervillain”.
One of the problems, he said, was that many real economy sectors thought the taxonomy was a piece of legislation regulating the financial sector and were only now “waking up,” with stakeholders or lobbyists from those sectors in his experience often having a poor level of understanding of the taxonomy.
In a recent webinar series about the taxonomy, Martin Spolc, head of sustainable finance in the European Commission’s financial services department, recently said there were lots of “misconceptions and anxiety” about the taxonomy.
Having received feedback from more than 45,000 respondents to its draft delegated acts in a recent consultation, the Commission is looking to finalise these in the second half of April. The delegated acts set out the criteria for economic activities to be deemed aligned with meeting the EU’s climate change goals.
Earlier this year the Commission asked the Platform on Sustainable Finance, which is advising it on the taxonomy, to help it with further questions, such as how to clearly address concerns that the taxonomy will be used to prevent financing of transitional activities, while at the same time ensuring the Commission was not facilitating “greenwashing”.