ESG - Sustainable finance update

1. SFDR/Taxonomy RTS: Postponement

In its letter of 25 November 2021, the EU Commission informed the EU Parliament and the Council that it would not be able to adopt the SFDR/Taxonomy level 2 Regulatory Technical Standards (“SFDR/Taxonomy RTS”) in December 2021 and that it would therefore postpone their application to January 2023 to give the industry sufficient time to prepare for compliance with the SFDR/Taxonomy RTS.

The EU Commission also confirmed in this letter that it would bundle the SFDR level 2 RTS (dated 15 February 2021) and the Taxonomy-related RTS (dated October 2021) into one single delegated act.

2. Publication of Taxonomy delegated acts

In relation to the Taxonomy Regulation:

• the delegated act which specifies the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to (i) climate change mitigation or (ii) climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives, was published in the Official Journal of the EU on 9 December 2021 (Climate Delegated Act);
• article 8(1) Taxonomy Regulation provides that certain large undertakings that are required to publish non-financial information under the Non-Financial Reporting Directive Directive 2013/34/EU (“NFRD”) should disclose information to the public on how and to what extent their activities are associated with environmentally sustainable economic activities, as defined under the Taxonomy Regulation.
  
  The delegated act supplementing the Taxonomy Regulation by specifying the content and presentation of non-financial information to be disclosed by undertakings subject to Articles 19a or 29a of NFRD concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation, was published in the Official Journal of the EU on 10 December 2021 (Commission Delegated Regulation (EU) 2021/2178).

3. Taxonomy complementary delegated act on gas and nuclear activities

On 2 February 2022, the EU Commission published a proposal for a Taxonomy Complementary Climate Delegated Act which includes a list of criteria that classifies investments in nuclear or gas power generation as "sustainable" (“Taxonomy Complementary Climate Delegated Act”).

According to the EU Commission’s proposal, natural gas and nuclear can be seen as a means to facilitate the transition towards a predominantly renewable-based future. 

As a reminder, in early January 2022, the EU Commission submitted the proposal to the Member States Expert Group on Sustainable Finance and to the Platform on Sustainable Finance.

In the Response to the Complementary Delegated Act published on 24 January 2022, the experts of the Platform on Sustainable Finance rejected the EU Commission’s proposal to include gas and nuclear activities in the taxonomy, concluding that these “activities are not in line with the Taxonomy Regulation and most members see a serious risk of undermining the sustainable Taxonomy framework. Further, Platform members have doubts about how the draft criteria would work in practice and many are deeply concerned about the environmental impacts that may result”. The EU Commission’s plans to include gas and nuclear in the taxonomy has also met with considerable opposition from a number of EU member states, notably Luxembourg, Germany and Austria.

As regards the next steps, once translated into all official EU languages, the Taxonomy Complementary Climate Delegated Act will be formally transmitted to the European co-legislators for scrutiny. Once the scrutiny period (four months, with a possible extension of 2 months) is over and if neither of the co-legislators objects, the Taxonomy Complementary Climate Delegated Act will enter into force and apply as of 1 January 2023.