EU Taxonomy for Sustainable Finance
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Taxonomy Technical Report June 2019 Disclaimer This report represents the overall view of the members of the Technical Expert Group, and although it represents such a consensus, it may not necessarily, on all details, represent the individual views of member institutions or experts. The views reflected in this Report are the views of the experts only. This report does not reflect the views of the European Commission or it services. 2 About this document This document sets out the results of the work to date undertaken by the Technical Expert Group on Sustainable Finance (hereafter, ‘TEG’) in relation to the development of an EU classification system for environmentally sustainable economic activities (hereafter ‘Taxonomy’). It has six parts: PART A Explanation of the Taxonomy approach. This section sets out the role and importance of sustainable finance in Europe from a policy and investment perspective, the rationale for the development of an EU Taxonomy, the daft regulation and the mandate of the TEG. PART B Methodology. This explains the methodologies for developing technical screening criteria for climate change mitigation objectives, adaptation objectives and ‘do no significant harm’ to other environmental objectives in the legislative proposal. PART C Taxonomy user and use case analysis. This section provides practical guidance to potential users of the Taxonomy, including case studies. PART D Economic impacts of the Taxonomy. This section provides the TEG’s analysis of the likely economic impacts of establishing an EU Taxonomy. PART E Next steps for the Taxonomy. This section elaborates on unresolved issues and potential ways forward for the Taxonomy and the technical work of the Platform on Sustainable Finance. PART F Full list of technical screening criteria. This annex sets out the sector- and economic activity-specific technical screening criteria and rationale for the TEG’s analysis. 3 Contents 1. Context and rationale ............................................................................................................ 10 1.1 An introduction - Why have an EU Taxonomy? .......................................................... 10 1.2 Background - The EU environment and climate action framework ............................ 11 1.3 The role of sustainable finance ................................................................................... 12 2. The Technical Expert Group ................................................................................................. 16 2.1 Mandate and work to date .......................................................................................... 16 3. Principles for Taxonomy development .................................................................................. 19 3.1 Principles enshrined in regulation ............................................................................... 19 3.2 Additional principles developed by TEG ..................................................................... 22 4. Sector framework .................................................................................................................. 23 5. Economic and environmental systems ................................................................................. 24 6. Climate change mitigation ..................................................................................................... 26 6.1 Work process – conceptual approach ........................................................................ 26 6.2 Methodology for selecting sectors and economic activities ........................................ 27 6.3 Defining substantial contribution to climate change mitigation ................................... 29 6.4 Eligibility of finance for activities contributing substantially to mitigation .................... 31 6.5 Mitigation activities table ............................................................................................. 34 7. Climate change adaptation ................................................................................................... 36 7.1 Work process – conceptual approach ........................................................................ 36 7.2 Defining substantial contribution to climate change adaptation ................................. 38 7.3 Adaptation screening criteria ...................................................................................... 40 7.4 Eligibility of finance for activities contributing substantially to adaptation ................... 41 7.5 Classification of climate-related hazards .................................................................... 41 7.6 Sectoral sensitivity to climate hazards ........................................................................ 42 7.7 Adaptation activities table ........................................................................................... 44 8. Do no significant harm (DNSH) ............................................................................................. 45 8.1 DNSH to climate change adaptation (for other environmental objectives) ................. 45 8.2 DNSH to environmental objectives 3-6 ....................................................................... 46 9. Climate change mitigation worked example ......................................................................... 49 10. Climate change adaptation worked example ........................................................................ 52 4 11. Users of the Taxonomy ......................................................................................................... 56 11.1 Defining the users ....................................................................................................... 57 11.2 Obligations for Taxonomy users ................................................................................. 61 12. Implementation matters ......................................................................................................... 62 12.1 General implementation approach .............................................................................. 62 12.2 Differences by asset classes ...................................................................................... 65 12.3 Case Studies ............................................................................................................... 66 13. Data: availability analysis and results ................................................................................... 71 13.1 Revenue breakdown by Taxonomy-related activities ................................................. 71 13.2 Environmental data ..................................................................................................... 71 14. Role of companies ................................................................................................................ 75 14.1 Advantages of reporting to facilitate the implementation of the Taxonomy ................ 75 15. Role of data providers ........................................................................................................... 77 16. Expected impacts of the Taxonomy ...................................................................................... 79 16.1 Coverage of the Taxonomy and financial quantitative impact assessment ................ 79 16.2 Qualitative analysis of the transmission channels of the Taxonomy .......................... 95 16.3 Cost and benefit analysis for relevant stakeholders ................................................... 97 16.4 Conclusions .............................................................................................................. 103 17. The extension of the TEG and development after TEG ...................................................... 104 17.1 TEG extension .......................................................................................................... 104 17.2 Ongoing development beyond the TEG ................................................................... 105 5 18. List of activities with technical screening criteria................................................................. 107 18.1 Summary: climate change mitigation ........................................................................ 107 18.2 Summary: climate change adaptation ...................................................................... 110 19. Agriculture ........................................................................................................................... 111 20. Forestry ............................................................................................................................... 156 21. Manufacturing ..................................................................................................................... 183 22. Electricity, gas, steam and air conditioning supply ............................................................. 232 23. Water, Sewerage, Waste and Remediation ........................................................................ 292 24. Transportation ..................................................................................................................... 324 25. Information and communication .......................................................................................... 357 26. Construction, Real estate activities ..................................................................................... 363 27. Agriculture, Forestry and Fishing .......................................................................................