Companies and investors have long struggled with defining what sustainablilty constitutes. The EU Taxonomy addresses this challenge by establishing a classification system to determine which economic activities are sustainable. The EU Taxonomy also introduces disclosure requirements for large public interest companies and financial market participants, such as insurance agencies and investment firms offering certain financial products within the EU and the UK. It represents a key turning point in corporate sustainability by fostering greater corporate accountability and transparency, and also usheres in the possibility on new sustainable finance products.
To be classified as a sustainable economic activity under the Taxonomy, an activity must:
- Substantially contribute to at least one of its six environmental objectives
- Do no harm to other environmental objectives;
- Meet minimal social and governance safeguards towards employees and other stakeholders; and
- Comply with technical screening criteria established under the Taxonomy
Large public interest companies must disclosue the extent to which their activities are environmentally sustainable, while financial market participants offering financial products which contribute to one of the six environmental objectives must also make certain disclosures.
However, any company can chose to use the Taxonomy to classify their economic activities as sustainable, as doing so can raise capital from sustainability-focused investors. With the current demand for sustainable investments outstripping the supply, a disclosing company can become more investible and foster positive publicity.
With these disclosure requirements entering into force on 31 December 2021, is your firm ready? Talk to us today about how Multiversum can support you in disclosuing under the EU Taxonomy and how we can help you transition business activities to be environmentally sustainable.
