Social Taxonomy risks death by Commission neglect

European Commissioner for Financial Stability, Financial Services and the Capital Markets Union, Mairead McGuinness is responsible for implementing the environmental taxonomy, that is hotly debated at the moment. This risks spelling doom for the social taxonomy. [Olivier Hoslet (EPA-EFE)]

This article is part of our special report Financing the social economy.

While the debate regarding the environmental taxonomy rages between EU member state governments, the project of establishing a social taxonomy is put on the backburner by the EU Commission, according to multiple sources, potentially delaying the process by several years.

The social taxonomy was meant to determine which businesses and thus which investments could be considered social, just as the currently debated sustainability taxonomy should define which economic activities are environmentally sustainable.

In theory, this should help direct money into social sectors and activities.

In February 2022, the Platform on Sustainable Finance presented its final report on the social taxonomy, suggesting that a future social taxonomy should consider three objectives: Decent work along the entire value chain, adequate living standards and wellbeing for end-users, and inclusive and sustainable communities.

Commission is holding back

Now, it seems that this taxonomy might not materialise any time soon.

Multiple sources close to the issue confirmed to EURACTIV that the Commission was stalling the work on the social taxonomy, making a proposal by the Commission within its current mandate highly unlikely.

“It is very clear that the Commission will not move forward on this until the end of this mandate in 2024,” one source told EURACTIV, calling it “a step backwards” for the sustainable finance agenda.

The current troubles of agreeing on an environmental taxonomy among member states seems to be one of the main reasons behind the Commission’s reluctance to push for a social taxonomy.

While the environmental taxonomy can, at least in theory, be directly derived from scientific knowledge about the physical reality of climate change, the social taxonomy is much more political. For example, a social taxonomy would have to find a workable definition of objectives like decent work, adequate living standards, and inclusive communities.

Thus, if the debate around the environmental taxonomy is already contentious, a discussion on a social taxonomy might be even more divisive.

“No decision has been taken”

Some sources fear more than just a delay of the social taxonomy by a year or two. As the technical work on the social taxonomy is not as advanced as the environmental taxonomy, a lot of work remains to be done.

“If this EU Commission stops the work on the social taxonomy, the next Commission will not have the technical basis to propose a social taxonomy fast,” one source told EURACTIV, adding that the Commission was deliberately delaying the work on the social taxonomy.

The EU Commission, meanwhile, neither confirmed nor denied that the social taxonomy had been put on the backburner.

In a written statement, the EU Commission told EURACTIV that “no decision has been taken at this stage on the social taxonomy.”

“As required by the Taxonomy Regulation, the Commission will publish its own report on the merits of possible provisions to extend the Taxonomy Regulation to cover social objectives in due course,” the Commission stated without providing a timeline for when such a report might be forthcoming.

The Commission appears to be prioritising the work on the environmental taxonomy and the green bond standard.

“Currently, the Commission is focusing on the implementation of the sustainable finance framework, following up on the actions outlined in last July’s strategy on sustainable finance,” the Commission’s statement pointed out.

EU lawmaker Sirpa Pietikäinen of the centre-right European People’s Party said she hoped the EU Commission would put the social taxonomy forward soon.

“We desperately need more social investment,” she told EURACTIV, arguing that a social taxonomy was necessary to achieve this.

“We are expecting that the social taxonomy is coming,” she said before adding that the European Parliament will increase pressure on the Commission if there is no progress.

[Edited by Alice Taylor]

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