Concerns over EU’s proposed Taxonomy for sustainable activities

As a part of EU’s Action Plan for financing sustainable growth, the European Commission is working on an EU Taxonomy, a classification system for sustainable activities. The EU requested feedback on the draft of the first set of criteria for the first two environmental objectives, climate change mitigation and climate change adaptation, in November. The deadline for the feedback was 18 December 2020.

Nordic agencies, MuniFin, Kommunalbanken and Kommuninvest, all seasoned green bonds issuers, have worked on a joint response regarding the EU’s proposed Taxonomy. Each institution has based their feedback on the common Nordic position on the issue and presented their view individually to the Commission.

A concern was expressed that the current draft of the Taxonomy delegated act risks considerably slowing down the harmonisation of the sustainable finance market. The feedback states that the administrative burden could grow to be too high, which could lead project owners (MuniFin’s customers) to prefer traditional borrowing requiring less disclosure. This could eventually lead to fewer eligible assets.

“The Taxonomy is an important tool that can drive the real economy towards making greener investments. However, in order for the Taxonomy to be usable, the so called Do No Significant Harm (DNSH) criteria should be simplified to relieve the excessive administrative burden on the project owner. The principle of proportionality should also be considered. Moreover, we feel the requirements and thresholds of the technical screening criteria should take regional contexts into account to reflect actual differences in environmental performance”, says Karoliina Kajova, Funding Manager at MuniFin.

MuniFin’s feedback