The EU’s sustainable investment guide needs to cover the whole economy rather than the current small proportion of sectors deemed ‘sustainable’, according to the EU Commission’s sustainable finance experts in a new report (1).

An extended environmental Taxonomy would cover the bulk of financial portfolios and hence become much more relevant and useful for financial institutions, the experts who make up the European Platform for Sustainable Finance say. Several investors and banks have raised concerns because the current ‘green-only’ taxonomy is expected to cover less than 5% of their portfolio (2). 

“One piece of a jigsaw does not give a full picture. Just like the successful EU energy efficiency label, we need the taxonomy to contain different categories and cover all key sectors to clarify where we are now and accelerate the transition to a sustainable economy,” said Sebastien Godinot, Senior Economist at WWF European Policy Office. 

It will be beneficial for activities that cannot immediately reach the level of ambition of the green taxonomy, provided they commit to leaving the harmful category and set up an activity-specific investment plan to ultimately reach the green category. Additionally, the extended Taxonomy will contribute to the European Green Deal. It will also end criticism that the taxonomy is ‘binary’ by providing more options when classifying economic activities.  

Moreover, the extended Taxonomy can be built based on the criteria already developed for the green taxonomy (3). That will put almost no additional burden on companies and financial institutions assessing their Taxonomy alignment. 

WWF believes in the transformative power of the extended Taxonomy and calls on the European Commission to support the Platform’s report and kickstart the process to develop technical steps for it, including a first phase during which organisations can test the extended framework on a voluntary basis (4). This sits very well within the recent Commission’s Strategy for Financing the Transition to a Sustainable Economy (5).  

Notes:

1. Their proposal is to design a 'traffic light' framework with three categories together - environmentally sustainable activities / intermediate activities / harmful activities - and separately, low environmental impact activities. This framework enables the creation of two different types of transitions:This framework enables the creation of two different types of transitions: (1) to reach the green category, whatever starting point; and (2) to exit the harmful category towards the intermediate one, provided an activity-specific investment plan is set up to ultimately reach the green category.
2. https://www.responsible-investor.com/flawed-criticisms-of-the-eu-s-sustainable-finance-plan-will-undermine-its-long-term-credibility/ 
3. Substantial Contribution criteria and Do No Significant Harm criteria.
4. A revision of the Taxonomy Regulation will be necessary ultimately.
5. https://ec.europa.eu/info/publications/210706-sustainable-finance-strategy_en