The criteria for the EU sustainable finance taxonomy can show investors and businesses the way to climate neutrality globally and getting the taxonomy right would make the EU a global trailblazer, argue Krista Mikkonen and Bas Eickhout.
Krista Mikkonen is the Minister of the Environment and Climate, Finland; Bas Eickhout is a Green MEP and the European Parliament’s co-rapporteur on the Taxonomy Regulation
Climate emergency is still with us. Global greenhouse gas emissions that plummeted due to the COVID-19 pandemic-related economic shutdowns have now already exceeded levels preceding the pandemic according to International Energy Agency.
To achieve the Paris Agreement goals we need to accelerate our transition to climate neutral circular economy. The EU can and should take the lead. It is fundamental to shift financial flows to 1,5C compatible investments if we are to meet — and go beyond — the EU’s enhanced 2030 climate target.
The EU sustainable finance taxonomy is a classification system establishing a list of environmentally sustainable economic activities. The framework was agreed between the European Parliament and the Council under the Finnish Presidency of the EU in 2019 and once fully implemented, it will have a crucial role in facilitating the climate transition of the economy.
In order to create the necessary security for investors seeking to finance climate solutions, it is important that the evaluation criteria have integrity and that the reduction of emissions and the strengthening of removals are based on sound science.
The criteria must provide a reliable framework for shifting international financial flows into environmentally sustainable economic activities. We cannot afford to risk derailing the exercise by setting the bar too low.
Investment decisions made today will determine the sustainability of our economy for the decades to come. The taxonomy should therefore set standards that may go beyond what is provided for in binding EU legislation, in particular in areas where sustainability criteria are not fully developed or harmonised.
Setting criteria for activities in the energy sector are most urgently needed. It is also important to establish criteria for new solutions, such as synthetic or power-2-x fuels to speed up the development of solutions for reducing emissions from aviation and shipping.
The sustainability of iron and steel products should take into account the potential for, inter alia, hydrogen recovery and carbon capture and use in manufacturing processes.
It is important that the technical assessment criteria do not fall behind existing EU energy legislation and do not increase incentives for unsustainable use of bioenergy or reduce incentives to increase carbon sinks.
As regards forestry, the criteria must ensure that the carbon sink of forests increases and as a minimum, that biodiversity does not deteriorate. Biodiversity loss and climate change are inseparable and interrelated processes, which should be taken into account in the preparation of technical assessment criteria.
For agriculture, the criteria should take into account the different natural conditions and potential for soil carbon sequestration in the member states. Agricultural activities on peatland should make use of practices that maximise soil carbon such as paludiculture.
The taxonomy criteria can show investors and businesses the way to climate neutrality globally and should therefore be up and running sooner rather than later. The EU cannot afford failure on this.