EU Taxonomy Directive standardises countries' ESG-related terminology

Chris Hamblin

18 July 2020

The EU wants to keep the Expert Group on Sustainable Finance going and allow it to advise the EU about the appropriateness of the technical screening criteria and the approach taken by the platform with regard to developing those criteria.

The taxonomy contains six objectives: the protection of biodiversity; the prevention and control of pollution; the promotion of a 'circular economy'; the protection of water and marine resources; adaptation to global warming; and the mitigation of the effects of global warming. It aims to set standards for investors as well as for issuers and policy makers. It does not cover shipping or aviation.

The parallel regulation that covers sustainability-related disclosures in the financial sector (Regulation (EU) 2019/2088) was passed in November and will come into force on 10 March 2021. Article 6 states that participants in financial markets must include descriptions of the following in their pre-contractual disclosures:

the manner in which "sustainability risks" are integrated into their investment decisions; and
an assessment of the likely effects of these risks on the returns of the financial products that they are making available.