Companies all over Europe are increasing their focus on sustainability, to live up to new regulations and contribute to worldwide environmental objectives. But what actually constitutes a ‘sustainable activity’? To encourage sustainable investments and to make sure everyone in the European Union is on the same page, the European Commission under Ursula von der Leyen’s leadership has created the EU Taxonomy. It describes what constitutes a ‘green’ investment – like working on the sustainable use and protection of water resources with Smartvatten.
To encourage and support sustainable investments, the European Union wants to clearly define which economic activities contribute the most when it comes to achieving the Union’s environmental obligations. Part of the EU Green Deal, a program to make the European economy more sustainable, the EU Taxonomy is a classification system for these activities, to create the necessary common understanding of what sustainability means in practice.
According to the European Union, the Taxonomy is ‘a robust, science-based transparency tool for companies and investors’, creating ‘a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment.’ It aims to both encourage investments focusing on a climate-conscious economy and bring an end to greenwashing.
Screening Criteria for Green Activities
With a list of environmentally sustainable activities, the Taxonomy shares screening criteria for what companies, investors and policymakers should consider green. Activities are only considered green when they make a substantial contribution toward one or more of six environmental objectives – the final one of which is of particular interest to Smartvatten and its customers:
- climate change mitigation;
- climate change adaption;
- transitioning to a circular economy;
- preventing pollution;
- protecting or restoring biodiversity and ecosystems;
- protecting marine and water resources.
They should further do not significantly harm any of the above objectives, comply with minimum safeguards and Technical Screening Criteria.
Living Up to Taxonomy Standards
Institutional investors and asset managers in Europe will be required to disclose how their fund aligns with the Taxonomy, which means that companies they’re working with will be asked to do the same. To fulfill the obligations that come with the taxonomy, asset managers are obligated to assess and report to what extent their complete portfolio is Taxonomy-aligned. The European Commission says that ‘in practice, the reporting procedures and resource planning will likely be organized at the level of the legal entity or entities of a given company.’ These entities will then ‘assess and report the percentage of their activities that are Taxonomy-aligned, expressed as the share of their Taxonomy-aligned turnover or expenditures (capital and operational). This information will then be aggregated across legal entities for the company as a whole.’
The GRESB organization recognizes that these new regulations are a challenging development for the real estate sector. They will require important changes for the industry with regard to transparency about Environmental, Social and Governance (ESG) criteria and asks for ESG reporting that is better aligned, comprehensive and of a high quality, and GRESB says it’s ‘committed to helping its members address these regulations.’
Investing in Green Activities
The new regulations are relevant to all companies. Not only the financial sector has to disclose to what extent their investments are green, but organizations in other sectors will also have to do the same. When revenue and (capital) investments can be identified as sustainable ecological, they’ll need to be tagged and classified according to the new system. And with capital markets starting to actively look for green investments to live up to the regulations, investing in your company’s green activities is a smart move.
To find out what Smartvatten can contribute to your sustainability approach, contact us at firstname.lastname@example.org!