COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT pursuant to Article 294(6) of the Treaty on the Functioning of the European Union concerning the position of the Council on the adoption of a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment 2018/0178 (COD), and amending Regulation 2019/2088 on sustainability-related disclosures in the financial services sector
Date: 2020-04-23
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU environmental policy, climate change policy, disclosure of information, economic activity, economic instrument for the environment, financial market, financial services, green economy, investment, sustainable development

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   EUROPEAN COMMISSION  Brussels, 23.4.2020  COM(2020) 155 final 2018/0178 (COD)  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT  pursuant to Article 294(6) of the Treaty on the Functioning of the European Union  concerning the position of the Council on the adoption of a Regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment 2018/0178 (COD), and amending Regulation 2019/2088 on sustainability-related disclosures in the financial services sector  
 
 
2018/0178 (COD) 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT 

pursuant to Article 294(6) of the Treaty on the Functioning of the European Union 

concerning the 

position of the Council on the adoption of a Regulation of the European Parliament and 
of the Council on the establishment of a framework to facilitate sustainable investment 
2018/0178 (COD), and amending Regulation 2019/2088 on sustainability-related 
disclosures in the financial services sector 

1. 

BACKGROUND 

Date of transmission of the proposal to the European Parliament  

24 May 2018 

and to the Council (document COM(2018) 0353 final – 2018/0178 
COD): 

Date of the opinion of the European Economic and  

17 October 2018 

Social Committee: 

Date of the position of the European Parliament, first reading: 

28 March 2019 

Date of transmission of the amended proposal: 

N/A 

Date of adoption of the position of the Council: 

15 April 2020 

2. 

OBJECTIVE OF THE PROPOSAL FROM THE COMMISSION 

In March 2018, the Commission presented an ambitious action plan on financing sustainable 
growth.1 The aim of this action plan is to mobilise the private sector for the transition towards 
a  low-carbon,  more  resource-efficient  and  more  sustainable  economy.  As  outlined  in  the 
action  plan,  the  lack  of  a  clear  definition  of  what  is  ‘environmentally  sustainable’  currently 
presents  one  of  the  biggest  obstacles  to  scale  up  green  investment.  This  is  why  one  of  the 
cornerstones  of  the  action  plan  is  the  creation  of  a  common  classification  system  for 
environmentally  sustainable  economic  activities,  or  an  “EU  taxonomy”.  To  this  end,  the 
Commission tabled a proposal for a regulation in May 2018,2 which had the following three 
goals:  

(1) 

to  provide  appropriate  definitions  to  companies  and  investors  on  which 
economic activities can be considered environmentally sustainable; 

Communication from the Commission to the European Parliament, the European Council, the Council, 

1 
the European Central Bank, the European Economic and Social Committee and the Committee of the Regions 
Action Plan: Financing Sustainable Growth (COM/2018/097 final) 
2 

Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  on  the  establishment  of  a 
framework to facilitate sustainable investment (2018/0178 (COD)). 

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(2) 

(3) 

to empower end-investors, including retail investors, to channel capital towards 
environmentally sustainable activities, by limiting the risks of ‘greenwashing’ 
through these definitions;3 and 

to  avoid  market  fragmentation  by  providing  a  single  point  of  reference  for 
investors,  companies,  and  Member  States,  when  defining  environmental 
sustainability for investment purposes.  

The EU taxonomy will constitute a common language that investors and companies can use to 
identify investment opportunities for projects and economic activities that make a substantial 
contribution to climate and environmental objectives. This will help investors and companies 
to transition their operations towards sustainability. The EU taxonomy will thus help to scale 
up  private  and  public  investments  to  finance  the  sustainability  transition,  in  line  with  the 
objectives of the European green deal. 

The  taxonomy  focuses  on  environmentally  sustainable  activities  in  the  areas  of:  climate 
change  mitigation;  climate  change  adaptation;  sustainable  use  and  protection  of  water  and 
marine  resources;  circular  economy;  pollution  prevention  and  control;  and  protection  and 
restoration  of  biodiversity  and  ecosystems.  By  31 December 2021,  the  Commission  must 
publish  a  report  on  extending  the  scope  of  the  taxonomy  to  cover  other  sustainability 
objectives, including social objectives. 

Once complete, the taxonomy will facilitate the development of standards and labels for green 
financial  products.  It  will  also  form  an  integral  part  of  sustainability-related  reporting  by 
financial  and  non-financial  companies.  Moreover,  as  announced  in  the  European  green  deal 
investment  plan,4  the  taxonomy  will  also  be  taken  into  consideration  in  the  guidance 
documents  on  climate  and  environmental  tracking  and  sustainability  proofing  as  part  of 
InvestEU,5  to  be  published  in  the  second  half  of  2020.  Beyond  InvestEU,  the  Commission 
will explore through a renewed strategy on sustainable finance, to be published in the second 
half  of  2020,  how  public  sector  entities  can  use  the  taxonomy,  in  order  to  achieve 
convergence  of  standards  between  the  private  sector  and  public  entities  and  make  the  most 
appropriate use of blended finance vehicles. 

3. 

COMMENTS ON THE POSITION OF THE COUNCIL 

The  position  of  the  Council  reflects  the  political  agreement  reached  between  the  European 
Parliament and the Council on 16 December 2019. The Commission supports this agreement.  

The political agreement introduced several changes that deviate from the initial Commission 
proposal, including on the following points: 

1. 

Extension of the scope of the Regulation:  

Firstly,  the  political  agreement  sets  out  an  additional  obligation  on  the  EU  to  apply  the 
taxonomy  for  the  purposes  of  any  public  measures,  standards  or  labels,  setting  out 
requirements  on  financial  market  participants  or  issuers  in  the  area  of  financial  products  or 
corporate bonds that are marketed as ‘environmentally sustainable’. 

Communication from the Commission to the European Parliament, the Council, the European 

‘Greenwashing’ refers to the practice of promoting an organisation's products, aims or policies as 

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environmentally-friendly when they may not be. 
4 
Economic and Social Committee and the Committee of the Regions: European Green Deal Investment Plan 
(COM/2020/21 final).  
5 
Programme (COM/2018/439 final - 2018/0229 (COD)). 

Proposal  for  a  Regulation  of  the  European  Parliament  and  of  the  Council  establishing  the  InvestEU 

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Second,  all  financial  market  participants,  as  defined  in  the  Disclosure  Regulation,6  will  be 
required  to  disclose  how  and  to  what  extent  the  investments  that  underlie  their  financial 
product  support  economic  activities  that  are  aligned  with  the  taxonomy.  Financial  market 
participants that do not wish to disclose taxonomy-alignment, and subsequently do not wish to 
market their product as environmentally sustainable or as having similar characteristics, will 
need to make a statement explaining this. 

Third,  large  financial  and  non-financial  companies  that  already  have  to  publish  a  non-
financial statement7 will need to disclose how and to what extent their activities are associated 
with  those  covered  by  the  taxonomy.  This  includes  approximately  6,000  companies  and 
groups across the EU. In line with the guidelines accompanying the Non-Financial Reporting 
Directive, the relevant reporting key performance indicators (KPIs) include turnover, capital 
expenditure,  and  operating  expenditure.  For  financial  companies,  different  KPIs  can  be 
further specified in a delegated act that the Commission is set to provide by June 2021. 

2. 

Specification  of  the  types  of  economic  activities  that  can  be  considered  for 
eligibility: 

The  political  agreement  introduces  two  sub-categories  of  environmentally  sustainable 
economic  activities:  enabling  activities  (applicable  to  all  six  environmental  objectives)  and 
transition activities (applicable only to the climate change mitigation objective). 

Enabling activities directly enable other activities to make a substantial contribution to one or 
more  of  the  environmental  objectives.  Safeguards  have  been  put  in  place  to  prevent 
greenwashing. The first of these safeguards is that enabling activities cannot lead to a ‘lock-
in’ in assets that undermine long-term environmental goals, considering the economic lifetime 
of  those  assets.  The  second  of  these  safeguards  is  that  enabling  activities  must  have  a 
substantial positive environmental impact on the basis of lifecycle considerations. 

Transition  activities  are  activities:  (i)  for  which  there  are  currently  no  technologically  and 
economically feasible low-carbon alternatives available; (ii) and that support the transition to 
a  climate-neutral  economy  in  a  manner  that  is  consistent  with  a  pathway  to  limit  the 
temperature  increase  to  1.5  degrees  Celsius  above  pre-industrial  levels.  Similar  to  enabling 
activities, a number of safeguards have been put in place, in order to prevent greenwashing.8 
This  sub-category  of  transition  activities  is  only  relevant  for  the  climate  change  mitigation 
objective. 

3. 

Changes in provisions that relate to specific economic activities of interest: 

Power generation activities from solid fossil fuels are explicitly excluded from eligibility.  

The importance of ‘climate-neutral energy’ for the transition is recognised in a recital to the 
political  agreement,  while  the  reference  to  ‘climate-neutral  energy’  as  part  of  the  climate 
mitigation objective was deleted. The Commission was asked to carry out an assessment of all 

Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on 

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 sustainability‐ related disclosures in the financial services sector (OJ L 317, 9.12.2019, pp. 1-16). 
7 
This includes companies subject to Directive 2014/95/EU of the European Parliament and of the 
Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity 
information by certain large undertakings and groups (OJ L 330, 15.11.2014, pp. 1-9). 
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Transition  activities  must  (i)  have  greenhouse  gas  emissions  which  are  substantially  lower  than  the 
sector or industry average; (ii) not hamper the development and deployment of low-carbon alternatives; and (iii) 
not lead to a lock-in in assets incompatible with the objective of climate-neutrality. 

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relevant existing technologies when selecting the activities that are eligible to be considered 
as  ‘transition  activities’.  In  this  context,  economic  activities  are  considered  as  ‘significantly 
harming’ where the long-term disposal of waste may cause significant and long-term harm to 
the  environment.  As  part  of  the  political  agreement,  the  text  also  reinforces  the  role  of  life 
cycle assessments in the development of the technical screening criteria. 

In  the  area  of  waste  incineration,  the  reference  to  ‘avoiding’  was  replaced  by  ‘minimising’ 
waste incineration as one of the ways an economic activity can contribute substantially to the 
transition  to  a  circular  economy.  Moreover,  a  reference  to  the  principles  of  the  waste 
hierarchy  was  added.  The  ‘do  no  significant  harm  principle’  explicitly  states  that  eligible 
activities should not lead to a significant increase in the generation, incineration or disposal of 
waste, granting an exception to the incineration of non-recyclable hazardous waste. 

4. 

Extension of the minimum social safeguards  

The  political  agreement  adds  three  international  human  rights  instruments/guidelines  to  the 
list of minimum safeguards: 

– 

– 

– 

the OECD Guidelines for Multinational Enterprises;  

the UN Guiding Principles on Business and Human Rights; and  

the International Bill of Human Rights. 

5. 

Expansion of the membership and tasks of the Platform on Sustainable Finance (‘the 
Platform’): 

The  political  agreement  expands  both  the  scope  of  operation  of  the  Platform  and  its 
membership, so it can advise the Commission on the following additional points: 

– 

– 

– 

– 

– 

the possible role of sustainability accounting and reporting standards to support 
the application of the taxonomy; 

the possible need to improve data availability and quality; 

addressing other sustainability objectives, including social objectives;  

the  functioning  of  the  minimum  safeguards  and  the  possible  need  to 
supplement the existing requirements; 

the  evaluation  and  development  of  sustainable  finance  policies,  including  on 
policy coherence issues. 

In  this context,  the political agreement specifies that the following  actors must  form part  of 
the composition of the Platform: 

– 

– 

– 

– 

the European Union Agency for Fundamental Rights;  

civil society representatives; 

representatives  of  relevant  financial  and  non-financial  business  sectors, 
including representatives of relevant industries; 

experts with accounting and reporting expertise. 

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The Platform will operate under the Commission’s horizontal rules on expert groups.9 

6. 

Establishment of a Member State Expert Group  

The political agreement creates a Member State Expert Group to advise the Commission on 
the appropriateness of the technical screening criteria and the approach taken by the Platform. 
This expert group will operate under the Commission’s horizontal rules on expert groups.10 

7. 

Amendments to the Disclosure Regulation 

The  political  agreement  introduces  targeted  amendments  to  the  Disclosure  Regulation.  In 
particular,  these  amendments  seek  to  anchor  the  taxonomy-related  disclosure  by  financial 
market  participants  within  the  larger  framework  on  sustainability-related  disclosures  by  the 
financial services sector as set out by the Disclosure Regulation. In this context, a number of 
amendments  were  made  to  empower  the  European  Supervisory  Authorities  (“the  ESAs”)  to 
develop  regulatory 
taxonomy-related  disclosure 
requirements in this context.  

technical  standards 

to  specify 

the 

In  addition,  an  article  on  the  principle  of  “do  no  significant  harm”  was  introduced.  This 
amendment empowers the ESAs to develop an additional regulatory technical standard. This 
additional regulatory technical standard will specify the details of the content and presentation 
of  the  information  in  relation  to  the  “do  no  significant  harm”  principle  for  social  and 
environmental objectives. The “do no significant harm” principle on social aspects, as defined 
in  the Disclosure Regulation,  should be consistent with  the  minimum safeguards laid out  in 
the  Taxonomy  Regulation.  Companies  should,  in  turn,  use  the  “do  no  significant  harm” 
principle when implementing procedures to comply with these minimum safeguards.  

8. 

Timeline for the delegated acts 

The  Commission  will  be  required  to  adopt  delegated  acts,  which  will  contain  the  technical 
screening criteria, for the two climate objectives by 31 December 2020 (entry into application 
on 31 December 2021), and for the other four environmental objectives by 31 December 2021 
(entry into application on 31 December 2022). 

9. 

Review 

The political agreement extends the review clause to task the Commission with covering the 
following additional topics when publishing its report: 

– 

– 

to  describe  the  provisions  that  would  be  required  to  extend  the  scope  of  the 
including  neutral  and 
taxonomy 
environmentally harmful activities; 

to  cover  other  economic  activities, 

to  assess  the  effectiveness  of  the  advisory  procedures  for  the  development  of 
the  technical  screening  criteria  (consisting  of  the  Platform  and  the  Member 
States Expert Group); 

– 

to evaluate the planned supervisory regime. 

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Commission expert groups (C(2016)3301). 
10 
Commission expert groups (C(2016)3301). 

Commission Decision of 30.5.2016 establishing horizontal rules on the creation and operation of 

Commission  Decision  of  30.5.2016  establishing  horizontal  rules  on  the  creation  and  operation  of 

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5. 

CONCLUSION 

The  Commission  supports  the  results  of  the  interinstitutional  negotiations  and  can  therefore 
accept the Council's position at first reading. 

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