After many months of intensive lobbying and several months of delay, the final criteria to determine economic activities that contribute significantly to climate change mitigation and adaptation, as part of the EU’s sustainable finance taxonomy, has been published today. As expected, the outcome is less fit for 55 than expected and reflects the intense political lobbying over the last months.
With last night’s adoption of a 55% GHG reduction goals for 2030, Europe needs a taxonomy that has teeth and ensures the investment needed for the massive scale up of climate mitigation and adaptation activities across Member States. The final Delegated Act as now proposed goes against the science-based recommendations of the Technical Expert Group, primarily for the activities related to bioenergy and forestry, while the European Commission has been largely successful in achieving an evidence-based approach for the other criteria.
Already in December 2020, Sandrine Dixson-Declève the Co-President of the Club of Rome, a former member of the Technical Expert Group on Sustainable Finance and a member of the Platform of Sustainable Finance, sent a letter after the publication of the draft Delegated Act to the three EU Institutional Presidents Von der Leyen, Michel, Sassoli as well as European Commissioners, setting out that the procedure clearly moved away from a forward-looking approach rooted in science to a back-ward looking approach rooted in vested interests. Sandrine Dixson-Decleve maintains that this warning still stands on some parts of the proposed Delegated Act “The taxonomy was supposed to be the cornerstone of the EU’s sustainable finance policy and the foundation for shifting capital to match European Green Deal and climate neutrality objectives. Unfortunately, this process got out of control due to intense pressure from national interests, including Member State governments and MEP’s. This does not bode well for the implementation of our Fit for 55 package; political interests cannot be factored in when there are catastrophic climate impacts.”
A recent attempt to include activities related to gas in the Act, and thus deeming gas as ‘green’, has been avoided, yet this will be further considered later this year at the demand of carbon-intensive Member States. For the agriculture sector, a decision was also delayed due to a logical decision to wait for “further progress on the negotiations underway on the Common Agricultural Policy (CAP), and in order to achieve greater coherence across the different instruments to achieve the environmental and climate ambitions of the Green Deal.” This logic was missing for the bioenergy criteria or for forestry, where a review of the Renewable Energy Directive and forestry policy is expected this year. Sandrine Dixson-Declève reinforces that “The forestry and bioenergy outcome is disappointing after a concerted effort and more ambitious recommendations from diverse experts to follow a comprehensive scientific evidence-based mandate.”
The taxonomy remains a dynamic tool, meaning these issues can be corrected, yet it doesn’t set a strong precedent for the taxonomy’s future development or future decisions related to the transition to a sustainable economy. It is therefore imperative that Europe avoids politically rooted decision making and comes back to science-based targets. To do that Sandrine Dixson-Decleve believes that the “The governance of the taxonomy must be re-evaluated to ensure the taxonomy develops through a transparent and evidence-based approach going forward. If this is not immediately guaranteed by the Commission than the credibility of the Platform and its experts is seriously at stake and members like myself will consider stepping down.”
To date the role of the Platform on Sustainable Finance has been put into question, following the neglect of the Technical Expert Group’s recommendations, and the Commission should emphasise its importance in supporting an evidence-based approach by enhancing its functions – thereby re-instating its intention that the EU taxonomy should be a science and evidence-based tool. The Platform can act to resolve the criteria as well as work with the EU co-legislators to provide the evidence-base for future decisions – supporting to uphold the requirement for technical screening criteria based on conclusive scientific evidence and the precautionary principle enshrined in Article 191 TFEU. Major changes should include enhancing the Platform’s powers and functions to ensure the development of the technical screening criteria takes an evidence-based approach at every stage.
Peter Blom, Chair of the Club of Rome’s Finance Impact Hub and CEO and Chair of the Executive Board of Triodos Bank:
“Only a robust scientific approach can bring all financial institutions, businesses and citizens on the journey of transformation as part of the recovery from COVID-19 – both in Europe and globally.”
“The investment community are looking to apply forward-looking scenarios rooted in science to their investment decision-making processes and so policy decisions have to move away from back-ward looking approaches rooted in vested interests.”