The number of companies changing their business models to become more sustainable as well as the number of investors shifting their portfolios to companies with sustainability embedded in their actions is rapidly growing. The problem up to now was however not a clear definition of sustainable financing. That is why the European Union introduced in May 2021 a new Green Taxanomy package that:
- Defines which business activities contribute most to the EU’s environmental objectives,
- Aims to make non-financial reporting more uniform and transparent,
- Introduces an obligation for financial institutions, such as banks and insurance companies, to include sustainability in their advisory services
What is EU Green Taxanomy?
The EU Green Taxonomy helps investors, companies, issuers and project promoters navigate the transition to a low-carbon, by helping them identify assets and carry out ESG tagging through a standardized, consistent approach, It sets performance thresholds and criteria to allow orientation in which companies can be identified as environmentally sustainable. The Green Taxonomy is therefore supportive of the EU’s 2030 climate and energy targets to be climate neutral by 2050.
The Green Taxonomy developed a list of environmentally sustainable activities. That said, it is neither a rating of “good” or “bad” companies. Nor is it a mandatory list of economic activities to invest in or to divest from. It does, however, aim to provide clear definitions of what constitutes “green” for companies, investors and policy-makers.
The Taxonomy Regulation sets out 3 groups of Green Taxonomy users:
- Financial market participants offering financial products in the EU – including occupational pension providers;
- Large companies already required to publish non-financial disclosures under the Non-Financial Reporting Directive (NFRD);
- The EU and Member States upon setting public measures, standards or labels for green financial products or green (corporate) bonds.
Key take-aways of the EU Green Taxonomy
Green Taxanomy first of all offers a new classification system designed to shift investments toward a low-carbon and climate-resilient economy – as opposed to greenwashing. It sets performance thresholds referred to as ‘technical screening criteria’, for economic activities to make a substantive contribution to at least 1 of 6 environmental goals ranging from climate change mitigation to climate change adaptation, sustainable protection of water and marine resources, the circular transition, pollution prevention and control and the protection and restoration of biodiversity and ecosystems. At the same time requires no significant harm to any of the other 5 goals wherever relevant while meeting minimum safeguards.
CEE Companies in focus
Financing and investments in sustainability is naturally becoming a big topic also for Central European Companies. First financial institutions such as Komerční banka are making steps to foster adoption of sustainable initiatives. At the same time growing number of Czech companies are introducing stronger connection of their ESG and business strategies. This month CEZ for example made stated a bold ambition to lead the ESG agenda in Czechia.
As can be seen from the new steps taken by the European Union, the issue of responsible finance and sustainability in general could not be avoided by Czech institutions and companies.
That is why we offer companies assistance in determining, revising and implementing their sustainable strategies.
We can help with orientation in current trends and obligations, in facilitating internal discussion about frameworks, priorities and their connection to your business strategy. Naturally, guidance on practical implementation into governance, reporting and execution can be provided too.