New EIT Climate-KIC supported report proposes basis for a future EU taxonomy in legislation

The European Commission has welcomed the publication of the three new important reports by the Technical Expert Group (TEG) on sustainable finance, including key recommendations on the types of economic activities that can make a real contribution to climate change mitigation or adaptation (see official press release). The first report, supported by EIT Climate-KIC’s expertise, provides a classification system – or taxonomy – for environmentally-sustainable economic activities. This aims to provide practical guidance for policymakers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy.

A taxonomy is a classification tool to help investors and companies make informed investment decisions on environmentally friendly economic activities. This aims to provide practical guidance for policymakers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy.

The TEG has extensively screened activities across a wide range of sectors, including energy, transport, agriculture, manufacturing, ICT and real-estate. It has identified low-carbon activities, such as zero-emissions transport, as well as transition activities such as manufacturing of iron and steel in order to compile the most comprehensive classification system for sustainable activities to date. This expert report is published as the Commission’s proposal on taxonomy awaits agreement by the co-legislators.

The report considers that three kinds of activity can make a substantial contribution to climate change mitigation. These are:

1) Activities that are already low carbon. These activities are already compatible with a 2050 net zero-carbon economy. Examples include zero emissions transport, near to zero-carbon electricity generation and afforestation.

2) Activities that contribute to a transition to a zero net emissions economy in 2050 but are not currently operating at that level. Examples include electricity generation <100g CO2/kWh or cars with emissions below 50g CO2/km.

3) Activities that enable those above. For example, the manufacture of wind turbines or the installation of highly efficient boilers

One of the principles to guide the decision-making approach of the TEG was to consider economic activities within entire economic systems: “The Taxonomy development approach has (…) aimed to identify activities that make a substantial contribution on their own but also enable the overall transition of critical systems such as the energy, transport, urban, water and food systems.” (page 24 of the report).  This principle-based on systems thinking deeply reflects EIT Climate-KIC’s mission and systems innovation approach, as manifested in the “Transformation, in time” strategy.

The Taxonomy is a fundamental tool in the EU’s finance toolbox to help deliver the Paris agreement goals and the EU’s 2050 climate neutrality objective.

Sandrine Dixson-Declève, Member of EIT Climate-KIC’s advisory council and Co-President of the Club of Rome, said: “These recommendations to the European Commission are robust both in their coverage of low carbon technologies as well as transition activities that will enable the shift of capital from “brown” to “green” in the real economy. I am proud to have represented EIT Climate-KIC and worked with a multi-disciplinary team of experts and European Commission Directorates to deliver a dynamic Taxonomy. This a step in the right direction to close Europe’s low carbon €175-205 billion investment gap and provides a common language for sustainable finance not only in the EU but across the globe”.

EIT Climate-KIC has been an active contributor to the report on taxonomy. Sandrine Dixson-Declève was selected to join the Technical Expert Group on Sustainable Finance to represent EIT Climate-KIC. In the Taxonomy sub-group, Ms Dixson-Declève worked on outreach and was co-chair of the Manufacturing group, part of the taxonomy subgroup. Felicity Spors, the Head of International Affairs at EIT Climate-KIC, was acknowledged as a “Member staff acting in TEG” role due to her inputs in supporting Ms Dixson-Declève through the provision of technical content and co-ordination of the Manufacturing group and general outreach. Daniel Zimmer, Director, Sustainable Land Use at EIT Climate-KIC, provided expert inputs as an invited expert on Agriculture and Forestry.

Background

The TEG commenced its work in July 2018 and was composed of 35 members from civil society, academia, business and the finance sector. These reports aim to further incentivise and channel private sector investment into sustainable development, by making investors more aware of what they invest in and by giving investors important tools to invest sustainably.

On 24 June, the Commission will host a stakeholder dialogue on climate-related reporting and the TEG reports. The event will be live-streamed on a dedicated event page.

Read more:

TEG report on EU taxonomy

Summary of the TEG report on EU taxonomy

User Guide for the TEG Report on EU taxonomy

Press Release of the European Commission