New sustainability criteria: IEEP’s take on the Commission’s proposal for the EU taxonomy

The European Commission presented new criteria to add to the EU’s classification system for sustainable finance for review in a public consulation, for the environmental objectives of biodiversity, circular economy, water and pollution. IEEP raised some concerns about wording which invites biodiversity offsetting and calls for a strong rationale in formulating the sustainability criteria.

IEEP’s response to the Commission’s consultation focused particularly on the approach taken to setting performance standards (being science-based), and more specifically on the activities prioritised to contribute towards the biodiversity objective. IEEP was part of the Technical Working Group (TWG) of the Platform on Sustainable Financefrom 2020 to 2022 (PSF 1.0). In general, it can be seen as positive that criteria for all environmental objectives have been proposed for inclusion into the Annexes of the proposed Delegated Regulation. However, our response raised concerns on the current form of the biodiversity criteria. In addition, the DA does not address essential sectors that need support in the sustainability transition, and which have a substantial impact on the biodiversity objectives of the EU.

Trying to sneak in biodiversity offsetting

For the biodiversity objective, four activities have been included in the proposed DA. It is positive to see the activities around environmental protection, restoration and conservation, as well as tourism, included in the proposal. This allows for financial resources to be directed to support these sectors essential in achieving biodiversity objectives. Our response focused on the criteria for Annex IV – BIO 1.1 Conservation, including restoration, of habitats, ecosystems and species, where there is a notable deviation from the original platform recommendations. The proposed DA text from the Commission reads: “6.1. The conservation activity does not only serve the purpose of offsetting the impact of another economic activity.” The inclusion of the word ‘only’ here fundamentally changes the objective, the potential impact of the criteria and it would serve to allow the use of the Taxonomy to justify biodiversity offsetting as substantial contribution to the protection of biodiversity and ecosystems.

This is not a substantial contribution, as the methodological rationale (and ambition requirement) is to exclude from any biodiversity criteria their use to offset the impact of the same or other activity on biodiversity. This is based in part on the premise that activities should do no significant harm (part of the Taxonomy requirements) as well as the mitigation hierarchy (as elaborated in the Platform’s methodological report). Our recommendation to rectify this is to reintroduce the original text of the proposal of the Platform on Sustainable Finance, as follows: “The conservation activity is not implemented with the purpose of offsetting the impact of another economic activity.”

Whilst new evidence may have been added in the months after the finalisation of Platform recommendations and prior to this consultation, the ambition level for any criteria should not be reduced from that of the proposed criteria, also suggested under Preamble 35 of the DA. The work undertaken by the Platform on an environmental transition taxonomy articulated that the line of substantial contribution will inevitably become more ambitious over time as we near the date of the targets set. Deviation in criteria ambition levels should be set in this context, and deviation from Platform recommendations should be justified, and always be of greater not lesser ambition.

Agriculture and forestry – no space for inclusion or revision

In March 2022 and October 2022, the Platform on Sustainable Finance provided recommendations for the sector of agriculture (animal and crop production) and separately for forestry, for substantial contribution to the protection of biodiversity and ecosystems. These recommendations, along with those of the Technical Expert Group in 2019, could take agriculture and forestry to new levels of sustainability, bringing them further in line with the ambitions of the European Green Deal.

These sectors are cited in EU institutions’ reports as being most responsible for declines in biodiversity, such as the EU Court of Auditors report or the more recent EEA report assessing the state and outlook on the environment. Private capital could support more than 80% of the EU’s land area and the sectors as a whole in both their sustainability transition and in responding to the adaptation needs in light of a changing climate.

Yet regrettably the proposed technical screening criteria have not been taken up in the proposed DA. Whilst there are some Taxonomy criteria for forestry in the Climate DA, agriculture remains currently absent with politics and Member State priorities likely reasons for the exclusion. Our recommendation is to include the agriculture and forestry criteria as proposed by the Platform.

The draft text of the DA refers to a Staff Working Document (SWD) in a variety of places (footnotes 7 and 12) to explain the reason why “activities such as agriculture, forestry or fishing…” require “further assessment and calibration of criteria” and why for those activities included with criteria “…(iii) explains any divergences or additions made to the Platform’s recommendations;”. However, as the SWD is not provided alongside the consultation, it becomes difficult to assess the criteria proposed other than against those original proposals and recommend alignment.

A Taxonomy with science-based approach

The importance of driving the science-policy interface is a lesson learned from the EU Taxonomy process. As described above, the EU Taxonomy DA that is currently on the table is adding to the deviation from the science-based recommendations of the expert groups. The recommendations made by the Platform were done so rigorously on the basis of the scientific and technical evidence available at the time of drafting. They included a detailed rationale as to the determination of those criteria, the methodological approach, their scope and the thresholds used. In order to justify any changes from those proposals, the same rationale and evidence should be provided by the Commission.