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EU Taxonomy

It cannot be produced or transferred. Nor can it be shared so that everyone can take care of their piece. Not even the most powerful companies own it. It is... the climate! That is why it is essential that all parties – including businesses – protect it and mitigate its changes. Global action will benefit everyone. We're about to see this in black and white, as the EU taxonomy became mandatory for major companies from 1 January 2022. Find out what this means in practice.

3 min read

Author:

Ksenia Pisera

Journalist, popularizer of knowledge about environmental and climate protection

Climate change could result in a global GDP being up to 37% lower in 2100 unless we manage to halt global temperature increases. This decrease is directly related to, among other things, maintaining the necessary infrastructure, access to resources, and health issues

Climate – the under-rated employee

Climate change affects every spectrum of life – including the economy. Several studies, including those published in Environmental Research Letters, describe possible climate change scenarios and the resulting economic models. They show that climate change could result in a global GDP being up to 37% lower in 2100 unless we manage to halt global temperature increases. This decrease is directly related to, among other things, maintaining the necessary infrastructure, access to resources, and health issues – these have a tremendous impact on workers’ productivity, among other things.

Therefore, we can say that climate protection should be firmly promoted in the organisational structures of companies and be an essential factor in business decisions. After all, the future of the entire planet depends on it.

EU taxonomy to help

Such an approach, by the way, is expected globally. The Paris Agreement, the 2030 Agenda and the European Green Deal all highlight the importance of sustainability issues. The provisions of these documents and the targets they contain set the redirection of private capital to pro-climate and pro-environmental investments. After all, if Europe is to achieve climate neutrality by 2050, the involvement of all groups is essential. The most important piece of legislation that regulates the disclosure of non-financial information in Poland is the amended Accounting Act introducing Directive 2014/95/EU of the European Parliament and of the Council on the disclosure of non-financial and diversity information by certain large entities and groups into Polish legislation.

Based on the data in ESG (Environmental, Social, Governance) reports, banks, insuring companies, and investors decide whether a company operates according to the principles of sustainable development and is suitable to receive financing. This year, for the fifth time, Polish listed companies are obliged to publish ESG reports.  

Importantly, companies must prepare this year’s reports with the help of a new tool. This tool is the so-called EU Taxonomy, the colloquial name for Regulation (EU) 2020/852 of the European Parliament and the Council of 18 June 2020 to establish a framework to facilitate sustainable investment

The EU taxonomy is a system of uniform classification of sustainable development activities. Thus, the introduction of harmonised concepts and clear criteria should form a shared understanding of “sustainable” action. It is also supposed to support entrepreneurs in making informed investment decisions on climate and environmental protection. Companies should indicate in their reports the percentage of turnover, investment (CAPEX) and expenditure (OPEX) in a given year concerning assets or processes that contribute to the objectives listed in the EU taxonomy.

The new EU Taxonomy will also reduce greenwashing. It will be harder to bend reality when everyone speaks the same language, and the same criteria apply to everyone.

There are several requirements that a company should meet in order to be classified as sustainable according to the EU taxonomy:

◦ Provide a significant contribution to at least one of six environmental objectives: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; protection and restoration of biodiversity and ecosystems. 

◦ Demonstrate “no significant harm” to other environmental objectives;

◦ Compliance with technical criteria;

◦ Compliance with minimum social and governance safeguards.

Everyone can go green

Notably, the EU taxonomy is open and adaptable also for entrepreneurs who are not subject to the reporting obligation. On the one hand, this is an opportunity to expand pro-climate and pro-environmental activities to other sectors of the economy. On the other hand, it may be an additional advantage for reporting entities at the stage of applying, e.g. EU co-financing. 

Efforts to protect the climate and the environment are reaching ever wider circles. Remember that we aim to spread knowledge and encourage people to take eco-friendly actions. Please treat this article as a general overview of the new regulations rather than legal advice.