Environment: One more step towards sustainable finance in The European Union

The 9th of December 2021 saw the European Commission’s
(“Commission”) EU Taxonomy Climate Change Delegated Act
(“DA”) was PublishedIn the Official Journal of the EU
After being approved by European Council. It will enter into force
Effecient as of January 20, 2022 The DA provides the first technical set.
To determine whether an applicant is eligible for screening (“TSC”)
Climate change is largely caused by economic activity
Mitigation and adaptation in the context scaling up sustainable
investments.

The Commission’s EU Taxonomy was published the next day, 10 December.
Article 8 Delegated Act (“Article 8 Delegated Act”)
Also PublishedIn the Official Journal of the EU
It will also be in force on the 1st of January 2022. This second
The instrument describes the content and presentation of the document.
Information about financial and non-financial businesses is required
To disclose under Article 8 of EU Taxonomy Regulation.
The Article 8 Delegated Act will be discussed at the conclusion of this article
alert.

The EU Taxonomy is the legal basis for the DA
Regulation

The EU Taxonomy RegulationThis was a significant milestone
EU sustainable finance It is one of the most important European institutions.
Instruments to channel private money towards the Green Deal
Ensure that the bloc achieves its climate goals

The regulation defines a system of classification to help categorize
Economic activities are based on six goals

• Climate change mitigation;
• Climate change adaptation;
• The sustainable use of water and marine resources and their protection
  resources;
• The transition to a circular economy
• Pollution prevention and Control
• The protection and restoration biodiversity
  ecosystems.

The EU Taxonomy Regulation is designed to assist investors and companies.
Make informed decisions about “environmentally sustainable”
Economic activities. However, the regulation doesn’t prevent economic activities.
Investments in activities not allowed under the EU Taxonomy. The
The green investment rules have the main goal of providing a platform for investors to invest in green.
Long-term incentive to direct financial flow towards
Ensure that you are engaging in environmentally sustainable activities

The EU Taxonomy Regulation’s classification scheme also includes
There are four criteria that can be used to determine if a given is a good candidate.
Economic activity should be considered “environmentally”
sustainable”. A business activity is considered sustainable.
“environmentally sustainable” when:

• It contributes significantly to one or several of the
  The regulation sets out environmental goals.
• It does no significant harm to any of the environmental resources
  objectives.
• It is done in compliance with the minimal safeguards.
  The Regulation.
• It meets all technical screening criteria set by the
  Commission in accordance to the Regulation

The EU Taxonomy Regulation gave the authority to do this.
Commission to adopt a delegated Act in order to establish TSC
Each environmental objective. The Commission, in other words,
I was asked to explain in detail what an activity means to me.
substantially contribute to an environment goal

The EU Taxonomy Regulation required that the Commission
Adopt the DA before 31 December 2020. It was only effective on 21 April 2021.
After consulting numerous stakeholders, the Commission was established
Publication of its draft of DA establishing TSC for
Climate change mitigation and climate adaptation goals
adaptation. The DA was finally adopted on 4th June 2021. On 9 December
2021. The DA was approved after approval by the European Council.
Publication in the Official Journal of the European Union.

The Technical Screening
Criteria

The TSC to determine the conditions under the new DA is set out in the new DA.
What economic activity qualifies for contributing substantially?
Climate change adaptationi.e.Art. 11 of
The EU Taxonomy Regulation contributes to the reduction in the
There are risks of adverse climate effects.
Change; Preventing an increase or shift of negative effects
Climate change (and mitigation)i.e., under
Article 10 of EU Taxonomy Regulation is a contribution to the
Stabilization of greenhouse gases concentrations by reducing
emissions or enhancing their removals). The DA also provides generic information.
There are criteria that will determine if an activity in the economy is harmful.
Significant harm to any of six environmental goals laid
In the EU Taxonomy Regulation, it is lower.

Annex I of DA lists a wide array of economic activities –
These include those that relate to forestry, manufacturing, energy, and water
Supply, transport, and others – and provides all the TSC required
Each activity must be certified as environmentally sustainable
Contributing to the climate change goal
mitigation.

Annexe II targets the same activities that the activities listed in
Annexe I, with some financial and insurance additions
activities, education and human health as well as social work activities
as well as arts, entertainment, recreation. It enunciates TSC
These economic activities must be considered as
Sustainable for the purpose of contributing towards the environment
Climate change adaptation is the goal

Both cases provide for technical thresholds.
Production or process requirements that require high quality performance
Requirements, project duration, and ofcourse a precise description
These are the economic activities that, by their nature, contribute to
climate change mitigation/adaptation.

The DA covers 88 activities, which can be combined.
They are considered to be environmentally sustainable if they meet the following conditions:
The TSC contained therein.

The DA will be effective from January 2022. It will allow the EU to
Taxonomy Regulation to be applied concretely for the two relevant
objectives.

What does it really mean in practice

In practice, both financial market participants and businesses will
You will be able use the TSC to determine whether you are eligible to report.
Their activities are eligible, and aligned with EU taxonomy
requirements. They will be able to meet the upcoming requirements.
Disclosure requirements under the EU Taxonomy Regulation.

Investors will then have the chance to decide
How their investments are channeled towards the environment
Sustainable economic activities, which could be to the detriment
Companies whose activities don’t qualify as environmentally-friendly
Sustainable or not checked if these activities are sustainable
qualified.

The DA also provides the market with a clear indicator of environmental performance
Benchmarking and establishing a common language for investors
Businesses and other stakeholders

Unavailability data was a major challenge.
Businesses can implement the EU Taxonomy. The DA should be given
Guidance on what data should be captured

Economic activities are not included in the
DA

One of the controversial issues raised after the adoption
DA was indisputably non-inclusion of any nuclear energy related
activities in taxonomy. This seems to be an ongoing subject.
Political discussion between EU-member countries. The DA indicates in its
Recital 27 – The nuclear energy assessment is still ongoing.
The Taxonomy may include nuclear energy at a later stage
Through a separate act.

The DA also states that the TSC should be applied to agriculture.
In view of the negotiations concerning the EU reform, delays
Common Agricultural Policy (Recital 4) An agreement on that
Reform was finally approved on 2/12/2021.
To include any TSC on Agriculture in the DA.

The Commission indicated that a Delegated Act would be added to the existing Delegated Act.
It is possible that natural gas legislation could be passed in the next year. It should be applicable to all natural gas.
Natural gas and related technologies as a transitional activities in
So long as they are within the EU Taxonomy’s limits
Regulation.

Next steps for TSC

Concerning the TSC for all four remaining environmental
Objectives (water, circular economy and pollution prevention
The EU Platform for Biodiversity, Ecosystems and Control (control, biodiversity, and ecosystems).
Sustainable Finance advises the Commission on taxonomy.
Published a draft of the report with preliminary recommendations
To the public consultation

The Commission is required by law to adopt the relevant separate
delegated act to the remaining four environmental objectives by 31
December 2021, a deadline likely to not be met, but with a view
To ensure its application starting 1 January 2023.

The Article 8 Delegated Act

Any company can be subject to Article 8 of EU Taxonomy Regulation
Subject to an obligation to publicly disclose non-financial data under
The Non-Financial Reporting Directive (“NFRD”) is mandatory
Include in the non-financial statement of consolidated
Non-financial information about how and to which extent it is
Activities are related to economic activities that are eligible as
It is environmentally sustainable.

The Article 8 Delegated Act provides more details.
Companies are required to report information on the proportion
They engage in environmentally sustainable activities.
They will be able to grow their business. It also offers a method to be used (e.g.
KPIs to be used in sustainable Capex/Opex of non-financial
companies).

In practice, the new DA will allow companies meet their requirements.
upcoming disclosure requirements for Article 8 of the
EU Taxonomy Regulation.

The companies must only report on specific elements (regarding).
taxonomy-eligibility) as of 1 January 2022. Other reporting
Provisions (regarding taxonomy alignment) will be in effect from
Non-financial organizations will be able to start 1 January 2023 and 1 January 2024, respectively
For financial companies

This is how investors can make more.
Make informed investments in the companies they represent
Investing in. This is in line the EU’s goal of increasing investment.
The flow of capital towards environmental sustainability
Activities throughout the region

Potential impact of the Commission’s CSRD
Proposal on disclosure obligations

It should be noted that the Commission also proposed to
Extend the scope of NFRD and thus the categories
Companies that are subjected to the disclosure obligations described below
By submitting your April 2019 tax returns, you can comply with Article 8 of the EU Taxonomy Regulation
2021 ProposalCorporate Sustainability
Reporting Directive (“CSRD”) The CSRD would be adopted if it is approved.
All listed companies (except micro-enterprises not listed) are eligible for this discount.
All large companies, listed or not, exceeding two out three
The following criteria are required: (i), a total balance sheet of 20
Million; (iii), net turnover of 40 millions; and 250 employees
The average number of the financial year. Currently, the NFRD only
Large public-interest entities (i.e. companies
Securities that are listed on EU markets, banks, and insurance
Companies (with an average number more employees than
500.

It is anticipated that the CSRD will come to an agreement in 2022.
Potential application from 2024, with companies reporting about the
2023 financial years.