EU Commission action plan on sustainable finance
In March 2018, the European Commission released its action plan on sustainable finance as part of a strategy to integrate environmental, social and governance considerations into its financial policy framework and mobilise finance for sustainable growth. Under the plan, the Commission adopted a package of legislative proposals: (1) a proposal for a regulation to establish a framework to create a unified EU classification system (‘taxonomy’) on what can be considered environmentally sustainable economic activities, (2) a proposal for a regulation on investors’ duties and disclosures, (3) low-carbon benchmarks, (4) better advice to clients on sustainability.
In July 2018, the Commission established a technical expert group on sustainable finance (TEG) to inform work on the action plan, notably the development of a classification system for sustainable economic activities, an EU green bond standard, methodologies for low-carbon indices, and metrics for climate-related disclosure. More information on the work of the TEG can be found here. Business & Human Rights Resource Centre was among the signatories to an open letter calling on the EU Commission to include human rights expertise in the expert group.
Under the European Green Deal, the Commission also announced a Renewed Sustainable Finance Strategy, which aims to ensure that financial systems support the transition towards sustainability in a context of recovery. The renewed strategy builds on the action plan and the work of the TEG.
In June 2020, the Taxonomy Regulation was adopted. To be considered environmentally sustainable under the Taxonomy, an activity must (1) contribute to at least one of six environmental objectives listed in the Taxonomy; and (2) do no significant harm to any of the other objectives, while respecting basic human rights and labour standards ("minimum safeguards"). Under the revised Corporate Sustainability Reporting Directive (CSRD), which mandates disclosure on environmental and human rights risks and impacts, companies are also required to report information about their company’s Taxonomy-aligned economic activities, while the Sustainable Finance Disclosure Regulation (SFDR) complements this by imposing mandatory ESG disclosure obligations on financial market participants, including on ‘environmentally sustainable economic activities’ defined by the Taxonomy.
Following the adoption of the Taxonomy Regulation, the Commission launched a call for applications for members of the 'Platform on sustainable finance', as set out by the taxonomy. The Platform on sustainable finance is an advisory body, comprising a group of experts who advise the Commission on the technical screening criteria for the EU Taxonomy, as well as on sustainable finance more broadly. The TEG's mandate ended on 30 September 2020.
On 28 February 2022, the Platform on sustainable finance published its final report on extending the existing EU taxonomy to include social objectives and the application of "minimum safeguards” (Article 18 of the Taxonomy). This followed a consultation on a draft report in the summer of 2021. The European Commission will review the recommendations and decide whether to go ahead.