Experts on the EU Taxonomy –
Matilda Persson, 2050 Consulting
The EU Taxonomy has unarguably given rise to headlines and discussions within both fields of sustainability and finance. Although the vast majority agrees that the taxonomy is a relevant step forward, there is yet much left to be defined and still much to learn from its practical application.
To raise our knowledge about the EU taxonomy, we have interviewed experts with different perspectives who have already gained a clear picture of what the taxonomy means in practice. In this article, we had the opportunity to speak to the EU Taxonomy expert Matilda Persson at 2050 Consulting.
In brief, describe your background and how you initially became familiar with the taxonomy!
I have over ten years of experience as a consultant within sustainable finance. To a large extent, I have worked on projects with the European Investment Bank and the EU Commission, but also closely with other large international financial institutes, companies, municipalities and regions. In 2019, I was part of the EU Commission expert group on sustainable finance (TEG). As a member of the taxonomy group, I helped coordinate the work, and produced activities and criteria. Today, I work at 2050 Consulting supporting organisations in the interpretation of the taxonomy, mapping their activities and preparing for the reporting process.
What are your impressions so far?
It has been incredibly rewarding, both to have been part of the development of the taxonomy through TEG and through its implementation as a consultant at 2050 Consulting. At TEG, I was part of the incredible work on which the taxonomy is built, as well as the extensive consultation done to develop science based activities and criteria of relevance for the market. Regarding the implementation, many issues are still left to be handled, both in relation to the reporting and the interpretation of activities and its criteria. Of course, this creates frustration, but I also see inspiring work done by companies to map their activities.
I see many interesting discussions going on, taking form when companies start to map out to what extent they contribute to sustainable transformations. From the initial interpretation as a reporting obligation, many companies have now started to appreciate the taxonomy as a business opportunity and a valuable instrument for transparent communication on the business’ contribution to a sustainable development.
What effects do you expect from the taxonomy on IPO companies?
That depends on the ambition of the company, and if they through their business intend to significantly contribute to the environment and climate. The aim of the taxonomy is to redirect capital to businesses which contribute positively to environmental and climate related aspects, and thus result in lower costs for these companies. It does not necessarily lead to taxonomy aligned businesses being less attractive, if they do not aim at presenting a green investment alternative.
And for remaining companies?
Non-IPO companies can be obligated to map how their actions align with the taxonomy, despite not being obligated to report when investors or other actors of interest request that. Regardless of if companies are obligated to report or not, I recommend acquiring knowledge about the taxonomy and how it is applicable to the company, as the taxonomy is expected to have a great impact on what is categorized as sustainable actions.
What advice do you have for IPO and non-IPO companies regarding the taxonomy and their sustainability actions?
The obvious advice is to start mapping the degree of taxonomy alignment within the company as soon as possible. Some reliefs in the reporting will exist during 2022 and companies are only required to report on proportions of the business which are identified in the taxonomy. Despite the reliefs, I still recommend mapping how to fulfill the requirements in the taxonomy to proactively communicate the degree of taxonomy alignment. It will also help prepare for the more extensive reporting coming in 2023 and not at least as it will include obligations to present data for 2021 retroactively.
Many companies prepare for reporting focusing on the KPI’s which are required to report on. Though, it is important to remember the narrative around the taxonomy and communicate that. This can for instance be focused on future plans and procedures of mapping the business. It could also be that companies include activities which significantly contribute to the Swedish Environmental law though not yet included in the taxonomy. That is important to highlight during the reporting.
It is also worth noting that the taxonomy is one part of the increasing reporting requirements coming. For example, there are directives on sustainability reporting coming, such as CSRD, where we currently see the first drafts. Clearly, companies need to prepare for increasing reporting requirements and at the same time follow the development in order to be more proactive. I hope, and think, that companies will see this as an opportunity to strengthen their sustainability actions and communication.
Some resistance to the taxonomy has emerged. What are your opinions on that?
Resistance to some definitions of sustainability in some sectors is expected as there is a general lack of consensus. Critique against the taxonomy arose as it did not seem to align with some of the directives it is based on. Some of these directives have now been remitted under “fit for 55” and through that, it is simply clear that the taxonomy is ahead of other regulations.
Regarding the taxonomy, it is important to remember that it is only the encyclopedia for sustainable financial activities. The applications of the taxonomy, will rather be governed by other directives and regulations, as well as the market itself. The fact that some companies already have implemented the taxonomy, shows that there has been a demand for it.
I agree that the debate on the taxonomy has been quite black and white. The taxonomy will probably not be the only way for investors to evaluate if a company should be regarded as sustainable. Though, it is also important to remember that activities outside of the taxonomy are not necessarily unsustainable.
The Future and next step for EU Taxonomy
The taxonomy is still new, what do you think will be the next step?
The taxonomy is still under development. For instance, the report on activities and criteria under the four remaining environmental goals are on referral. I hope that actors seize the opportunity and comment on parts of the report with relevance for their own businesses. During the developmental phase, I learned how important and welcoming the feedback is.
I am also following the development of a social taxonomy and an extension of the green taxonomy, with an inclusion of activities that contribute to social sustainability and activities that result in significant damage to environmental goals or do not produce any significant damage. The Commission is working on a process and a system for companies to report on activities which should be included in the taxonomy, but are not today. I hope that our view of the taxonomy as something static will then change, and I look forward to coming extensions of the taxonomy to include all important activities with regards to sustainable development.
Additionally, there are several interesting reports coming from the EU expert group, the platform for sustainable finance, in the upcoming months. To mention one, I look forward to reading the report on data and implementation of the taxonomy.
Many thanks Matilda for your participation!
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