“We believe it is important to share the knowledge we have with our customers, give them a view of what is going on and indicate the direction of the work,” says Karl-Oskar Olming, Head of Sustainability Strategy and Policy at SEB who is a member of the expert group.
The EU’s Platform on Sustainable Finance consists of just over 50 members and includes experts from industry and interest groups, authorities, academia and research as well as a number of major companies. The private banking sector is represented by SEB and BNP Paribas.
In the spring, the expert group published three reports with recommendations on how the taxonomy should be developed. Two of the reports’ lead authors were present last week when SEB invited corporate customers and financial institutions to a webinar in order to present the plans.
This covered among other things work on developing a social taxonomy.
“We need a social taxonomy to make social investments more transparent. In the same way as we need more capital for green activities, we need more capital for investments, for example, in healthcare, social housing or education. A social taxonomy allows us highlight these investments for banks and investors,” says Antje Schneeweiss, rapporteur for the subgroup that authored the report with advice and recommendations for a social taxonomy.
The main challenge for a social taxonomy is that the social area is regulated by national legislation which differs between countries.
“We need to find a way to build on national legislation with criteria that remain meaningful but are expressed differently in different member states. This is a challenge,” she says.
Nancy Saich is rapporteur for the working group with recommendations for an extended environmental taxonomy. This was the working group in which SEB’s Karl-Oskar Olming participated. The report focuses on those parts of the economy that are not affected by the green climate criteria in the taxonomy’s first section. She explains that this is about three areas.
“Firstly, we need to identify businesses that can never achieve the transition to a sustainable future, such as coal mining or manufacture of conventionally powered vehicles. Here we need to be able to use the EU’s Just Transition Fund to protect jobs and employment. We also think that we should be able to expedite transition by using green financing to decomission such operations.”
The second area is businesses that need to transition but do not currently meet the taxonomy’s threshold for significant harm or the threshold for the green taxonomy. Regarding the taxonomy’s criteria for heavy industry, only ten per cent of the companies participating in the EU’s Emissions Trading System are classified as green.
“This means that 90 per cent are not green. But there is a big difference between companies that are in the process of transition but are not yet fully green and companies that are not doing anything. We want to motivate more companies to move away from activities that create significant harm. We call this ‘intermediate transition’ (amber transition). This is much more inclusive since it provides an opening for more companies to finance their transition.”
The third area is the services sector which accounts for 30-40 per cent of the European economy.
“The services sector has in general a low environmental impact, but still needs to become green. Service companies need energy-efficient premises, to switch to electric vehicles and become more circular. They also need access to green financing to reduce their environmental impact, even if they will not be covered by the taxonomy definitions for the foreseeable future.”
Short and long perspective
When can the expert group’s recommendations be realised?
“Changing the taxonomy needs legislative changes and will undoubtedly take a number of years. It also depends on the European Commission deciding to take some of these ideas forward. But there are some things that can be implemented quickly. For example, the middle way between significantly contributing to the green transition and not creating significant harm – what we call ‘intermediate transition’. Our recommendation is that this could be used on a voluntary basis by companies that want to describe their journey for investors and shareholders and borrow capital to finance their activities,” says Nancy Saich.