On 9 December 2021, the first of two planned sets of technical screening criteria (TSC) for assessing economic activities as environmentally sustainable under the EU Taxonomy Regulation were published. The TSC provide businesses and investors with “a clear environmental performance benchmark” against which to assess activities and investments as having a positive impact on mitigating and/or adapting to climate change.
Taxonomy & Climate TSC
The Taxonomy Regulation (Taxonomy) is the core legislative measure under the EU’s Sustainable Finance Action Plan, adopted to facilitate financing of the European Green Deal by private capital markets. The Taxonomy establishes an EU standard for environmentally sustainable activities by setting out a non-exhaustive list of economic activities accompanied by criteria for assessing each activity as positively impacting (or reducing negative impacts on) EU environmental objectives, while simultaneously not harming any of those objectives. The TSC published yesterday are the criteria necessary for assessing activities as having a positive impact on, while not significantly harming, the environmental objectives of climate change mitigation and adaptation (Climate TSC).
In all, there are over 200 Climate TSC covering activities across 13 economic sectors:
- Environmental protection and restoration activities
- Water supply, sewerage, waste management and remediation
- Construction and real estate activities
- Information and communication
- Professional, scientific, and technical activities
- Financial and insurance activities
- Human health and social work activities
- Arts, entertainment, and recreation
Each Climate TSC set down performance thresholds for (i) substantially contributing to climate change mitigation and/or adaptation and (ii) complying with the Taxonomy principle of ‘do no significant harm’ i.e. that the activity which meets the threshold for contributing to one of the climate objectives does not simultaneously impede the achievement of the other. The ‘do no significant harm’ or DNSH principle is a core aspect of the Taxonomy included to ensure progress towards one objective is not made at the expense of another. In welcoming the publication of the Climate TSC, the PRI noted the importance of the Climate TSC setting a “technologically neutral performance threshold for electricity generation in the energy sector at 100gCO2e/kwh for substantial contribution to climate mitigation and 270gCO2e/kwh for significant harm.”
While the Taxonomy (including the Climate TSC) is a voluntary standard, a cross-section of companies will be required to disclose whether and to what extent their activities are aligned with the standard. The Taxonomy disclosure requirements first come into effect on 1 January 2022, with additional disclosures required from January 2023 and January 2025. EU legislation prescribing the content and presentation of required Taxonomy disclosures is currently awaited (see here for further details).