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Under the Paris Agreement, which was signed in 2015, two hundred countries agreed to work towards ending global warming. In addition, the European Union is committed to become climate-neutral by 2050. To achieve these objectives, in March 2018 the EU launched an action plan for financing sustainable growth, which is part of the European Green Deal aimed at greening the European economy. A key step in achieving the objectives of the EU action goal is the establishment of a uniform classification system for sustainable economic activities or “EU Taxonomy”.
The EU Taxonomy is a classification system that specifies a list of (environmentally) sustainable economic activities. It is a robust and science-based methodology designed to help investors, companies, issuers and project promoters alike to navigate the transition to a low-carbon, resilient and resource-efficient economy. Having clear-cut definitions of which economic activity is sustainable by imposing clear but strict screening criteria results in greater transparency and makes comparison easier. The EU also aims to reduce so-called ‘greenwashing’ by this system.
The first disclosure requirements came into effect on 1 January 2022. Consequently, after this date annual reports published by organisations covered by the EU Taxonomy will need to include the information required under the regulation. The EU Taxonomy requires companies to disclose a number of KPIs with respect to any Taxonomy-eligible and aligned economic activities they undertake, consisting of a percentage of eligible/aligned revenue, capital expenditure and certain operating expenditures. Financial institutions are required to disclose which part of their investments are financing Taxonomy eligible/aligned economic activities of their counterparties.
The EU Taxonomy provides an opportunity for companies to demonstrate their performance and progress made in terms of having a more sustainable business model. However, reporting on the EU Taxonomy also brings a number of challenges for organisations:
The Sustainable Finance Taxonomy Tool developed by PwC provides a solution for financial institutions to gather EU Taxonomy KPI data from their counterparties. It helps establish bilateral communication by means of a structured and focused approach. Ready-to-use questionnaires developed by our network of PwC ESG experts make it as easy as possible for investee companies to assess their economic activities. The global sustainability platform developed by our inhouse PwC software development team enables workflow management, creating an audit trail and submitting questions to colleagues within the investee’s organisation.
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Are you interested to see how the Sustainable Finance Taxonomy Tool works? Would you like to hear how our tool can add value to your organisation? Then sign up now for our live demo session
Kees-Jan de Vries
Partner, PwC Netherlands
Tel: +31 (0)61 069 68 28
Senior Manager, PwC Netherlands
Tel: +31 (0)6 57482029