Taxonomy

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Sustainability taxonomies (or classification systems) have been developed by governments, international bodies and non-governmental organisations to help identify specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability.

Many of these taxonomies refer to or emulate the EU Taxonomy, widely regarded as the most developed system for sustainable finance investment classification and measurement.

EU Taxonomy: The European Commission’s Technical Expert Group on sustainable finance (TEG) has developed a classification system, or taxonomy, for environmentally-sustainable economic activities. The group screened activities across a wide range of sectors, including energy, transport, agriculture, manufacturing and real estate and identified low-carbon activities such as zero-emissions transport but also transition activities like iron and steel manufacturing to compile a framework to identify the parts of a business that have a significant positive impact on climate. The taxonomy also provides guidance on the boundaries of negative impact with do-no-significant-harm (DNSH) criteria. The political agreement EU co-legislators reached on the taxonomy regulation in December 2021 bolsters transparency. Companies that are obliged to report under NFRD will be required to disclose the share of their business/capex/assets that is taxonomy aligned.

Climate Bonds Taxonomy: A guide to climate aligned assets and projects. It is a tool for issuers, investors, governments and municipalities to help them understand what the key investments are that will deliver a low carbon economy.

The Taxonomy aims to encourage and be an important resource for common green definitions across global markets, in a way that supports the growth of a cohesive thematic bond market that delivers a low carbon economy.

Climate Bonds were a major contributor to the development of the EU Sustainable Finance Taxonomy.

Links

European Commission: EU taxonomy for sustainable activities