COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A sustainable finance framework that works on the ground
Date: 2023-06-13
Institutions: Directorate-General for Financial Stability, Financial Services and Capital Markets Union, European Commission
Subjects: EU environmental policy, EU financing, European standard, carbon neutrality, credit rating, exchange of information, green economy, investment, sustainable development, sustainable finance

EN 

  EN 

   EUROPEAN COMMISSION  Strasbourg, 13.6.2023  COM(2023) 317 final  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS A sustainable finance framework that works on the ground {SWD(2023) 209 final}  
 
 
COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL 
COMMITTEE AND THE COMMITTEE OF THE REGIONS 

A sustainable finance framework that works on the ground 

Introduction 

The European Green Deal1 and the transition to a climate-neutral and sustainable economy by 
2050 present considerable challenges, in particular in the current geopolitical and economic 
context, but also offer opportunities for the EU. Investment in the green transition will help 
make Europe the first climate-neutral continent and build a sustainable, fair, and prosperous 
society.  Investments  in  clean  and  sustainable  energy  sources  and  energy  efficiency  will 
strengthen the EU’s open strategic autonomy and reduce our reliance on Russian and fossil 
fuel imports from outside the EU, helping to moderate energy prices in the future. To do so, 
investments in our capacity to develop and manufacture clean technologies are also required, 
to avoid creating new strategic dependencies and to reinforce the EU’s competitiveness. By 
contrast,  failure  to  take  action  on  time  to  address  climate  and  nature-related  risks  will  bear 
significant  costs  for  businesses  and  society  and  may  lead  to  disruptive  readjustments,  with 
implications  for  financial  stability.  To  achieve  these  goals,  the  EU  will  need  additional 
investments  of  about  EUR  700  billion  annually  to  meet  the  objectives  of  the  Green  Deal, 
RepowerEU and the Net Zero Industry Act23. By far the greater part of these investments will 
have to come from private funding.  

The EU’s sustainable finance agenda aims  to  support companies and the financial sector in 
this  effort  by  encouraging  private  funding  of  transition  projects  and  technologies  and 
facilitating  financial  flows  to  sustainable  investments.  The  EU  has  made  considerable 
progress  in  implementing  its  sustainable  finance  agenda  over  the  last  5  years.  Milestones 
include  the  adoption  of  the  Taxonomy  Regulation4,  the  Sustainable  Finance  Disclosure 
Regulation  (SFDR)5,  EU  climate  benchmarks  in  the  Benchmark  Regulation6,  the  European 
Green Bond Regulation7 and the Corporate Sustainability Reporting Directive (CSRD)8. The 

1 Communication from the Commission to the European Parliament, the European Council, the Council, the European 
Economic and Social Committee and the Committee of the Regions, The European Green Deal, COM(2019)640). 
2 Commission Staff Working Document on Investment needs assessment and funding availabilities to strengthen EU’s Net-
Zero technology manufacturing capacity, SWD(2023) 68 final.  
3 Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European 
Economic and Social Committee, the Committee of Regions, The EU economy after COVID-19: implications for economic 
governance, COM (2021) 662 final. 
4 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a 
framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088. 
5 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related 
disclosures in the financial services sector, OJ L 317, 9.12.2019. 
6 Regulation (EU) 2019/2089 of the European Parliament and of the Council of 27 November 2019 amending Regulation 
(EU)  2016/1011  as  regards  EU  Climate  Transition  Benchmarks,  EU  Paris-aligned  Benchmarks  and  sustainability-related 
disclosures for benchmarks, OJL 317, 9.12.2019. 
7 Proposal for a regulation of the European Parliament and of the Council on European green bonds, COM/2021/391 final. 
Political agreement reached by co-legislators on 28 February 2023. 

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EU has also made clarifications that fiduciary duties in asset management, (re-)insurance and 
investment sectors also encompass sustainability risks and has laid down provisions requiring 
sustainability preferences of retail investors  to be discussed at the point of sale9. In autumn 
2021, the Commission proposed prudential measures as part of the banking10 and insurance11 
packages to increase the financial sector’s resilience to sustainability risks; these are currently 
under  negotiation  by  the  co-legislators.  Together,  these  elements  ensure  that  the  financial 
sector is increasingly taking account of sustainability factors. 

The package presented today is an important step towards completing the sustainable finance 
framework.  The  Taxonomy  Delegated  Acts12  will  enable  investments  in  more  sectors  and 
economic activities to be recognised as environmentally sustainable, including activities and 
associated  criteria  for  all  six  environmental  objectives  of  the  Taxonomy  Regulation13.  The 
proposal  for  a  regulation  on  transparency  and  integrity  of  environmental,  social  and 
governance (ESG) rating activities14 will ensure that ESG ratings become a more reliable and 
transparent  component  of  the  sustainable  finance  value  chain.  The  forthcoming  European 

8 Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) 
No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability 
reporting, OJ L 322, 16.12.2022.  
9  Commission  Delegated  Directive  amending  Directive  2010/43/EU  as  regards  the  sustainability  risks  and  sustainability 
factors to be taken into account for Undertakings for Collective Investment in Transferable Securities (UCITS); Commission 
Delegated  Regulation  amending  Delegated  Regulation  (EU)  No  231/2013  as  regards  the  sustainability  risks  and 
sustainability factors to be taken into account by Alternative Investment Fund Managers; Commission Delegated Regulation 
amending  Delegated  Regulations  (EU) 2017/2358  and  (EU)  2017/2359  as  regards  the  integration of  sustainability  factors, 
risks  and  preferences  into  the  product  oversight  and  governance  requirements  for  insurance  undertakings  and  insurance 
distributors  and  into  the  rules  on  conduct  of  business  and  investment  advice  for  insurance-based  investment  products; 
Commission Delegated Directive amending Delegated Directive (EU) 2017/593 as regards the integration of sustainability 
factors  into  the  product  governance  obligations;  Commission  Delegated  Regulation  amending  Delegated  Regulation  (EU) 
2015/35  as  regards  the  integration  of  sustainability  risks  in  the  governance  of  insurance  and  reinsurance  undertakings; 
Commission  Delegated  Regulation  amending  Delegated  Regulation  (EU)  2017/565  as  regards  the  integration  of 
sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment 
firms; 
10  Proposal  for  a  regulation  of  the  European  Parliament  and  of  the  Council  amending  Regulation  (EU)  No  575/2013  as 
regards  requirements  for  credit  risk,  credit  valuation  adjustment  risk,  operational  risk,  market  risk  and  the  output  floor 
(COM/2021/664  final)  and  Proposal  for  a  Directive  of  the  European  Parliament  and  of  the  Council  amending  Directive 
2013/36/EU  as  regards  supervisory  powers,  sanctions,  third-country  branches,  and  environmental,  social  and  governance 
risks, and amending Directive 2014/59/EU (COM/2021/663 final). 
11  Proposal  for  a  directive  of  the  European  Parliament  and  of  the  Council  amending  Directive  2009/138/EC  as  regards 
proportionality, quality of supervision, reporting, long-term guarantee measures, macro-prudential tools, sustainability risks, 
group and cross-border supervision (COM/2021/581 final). 
12 Commission Delegated Regulation (EU) 2023/3851 supplementing Regulation (EU) 2020/852 of the European Parliament 
and of the Council by establishing the technical screening criteria for determining the conditions under which an economic 
activity  qualifies  as  contributing  substantially  to  the  sustainable  use  and  protection  of  water  and  marine  resources,  to  the 
transition to a circular economy, to pollution prevention and control, or to the protection and restoration of biodiversity and 
ecosystems and for determining whether that economic activity causes no significant harm to any of the other environmental 
objectives  and  amending  Delegated  Regulation  (EU)  2021/2178  as  regards  specific  public disclosures  for  those  economic 
activities; Commission Delegated Regulation (EU) 2023/3850 amending Delegated Regulation (EU) 2021/2139 establishing 
additional  technical  screening  criteria  for  determining  the  conditions  under  which  certain  economic  activities  qualify  as 
contributing  substantially  to  climate  change  mitigation  or  climate  change  adaptation  and  for  determining  whether  those 
activities cause no significant harm to any of the other environmental objectives;  
13  The  six  environmental  objectives  under  the  EU  Taxonomy  are:  (i)  climate  change  mitigation;  (ii)  climate  change 
adaptation;  (iii)  sustainable  protection  and  restoration  of  water  and  marine  resources;  (iv)  the  transition  to  a  circular 
economy; (v) pollution prevention and control; and (vi) the protection and restoration of biodiversity and ecosystems; 
14  Proposal  for  a  regulation  on  the  transparency  and  integrity  of  Environmental,  Social  and  Governance  (ESG)  rating 
activities, (COM(2023) 314 final). 

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sustainability  reporting  standards  under  the  CSRD  will  enable  companies  to  communicate 
sustainability information in  a standardised  way  to  a variety  of lenders, investors and other 
stakeholders.  The  Commission  Recommendation15  illustrates  how  the  sustainable  finance 
framework  encompasses  transition  finance  and  explains  how  companies,  investors  and 
financial  intermediaries  can  voluntarily  use  the  current  sustainable  finance  framework  to 
finance their transition to  a climate neutral  and sustainable economy,  while enhancing their 
competitiveness,  with  practical  examples  and  explanations.  Finally,  the  accompanying  staff 
working  document  on  the  usability  of  the  EU  Taxonomy  and  the  wider  EU  sustainable 
finance framework provides an  overview of the key pillars of the framework now in  place, 
and takes stock of recently adopted usability measures16. 

Early analysis of reporting shows that the EU sustainable finance framework is beginning to 
work  as  intended,  facilitating  private  finance  for  green  and  transition  investments  through 
transparency  and  as  a  comprehensive  toolbox.  For  instance,  companies  are  applying  the 
taxonomy and are starting to communicate their sustainable investments based on it. 

the 

transition  offers 

Notwithstanding  the  significant  progress  achieved  to  date,  and  the  opportunities  and 
competitive  advantages 
the  Commission 
acknowledges  that  companies,  in  particular  SMEs,  face  significant  challenges  when 
transitioning  to  a  climate  neutral  and  sustainable  economy.  These  challenges  include 
identifying  solutions  where  green 
technologies  are  not  yet  available,  articulating 
sustainability objectives and actions as part of business strategies, and complying with higher 
environmental  and  social  sustainability  standards  and  sustainability-related  disclosure 
requirements and overcoming labour and skills shortages in the workforce.  

longer 

term, 

the 

in 

The implementation and the first application of sustainability disclosure requirements may be 
challenging  as  well,  as  the  phase-in  of  reporting  raises  implementation  and  usability 
questions  and  requires  firm-level  investments  into  originating,  processing,  and  quality 
assuring  of  the  required  information.  The  Commission  is  committed  to  actively  supporting 
implementation, and to ensuring the framework’s usability and inclusiveness  for companies 
of different sizes, business models and with different starting points.  

A sustainable finance framework that works on the ground 

With  the  mains  elements  of  the  sustainable  finance  framework  in  place17,  companies  and 
financial entities have started to apply the tools and disclosure standards for their economic 
and financing activities. Over the next  few  years, the  quality and availability of disclosures 
and  data  will  improve  as  the  implementation  of  the  sustainable  finance  framework 
progresses,  and  market  actors  will  be  able  to  leverage  the  taxonomy  and  other  ESG 
information  to  make  informed  investment  decisions,  articulate  and  engage  on  sustainability 
objectives  and  obtain  or  provide  financing  for  the  transition  to  a  climate  neutral  and 

15 Commission Recommendation on facilitating finance for the transition to a sustainable economy (C(2023) 3844).  
16 Staff working document on ’Enhancing the usability usability of the EU Taxonomy and the overall EU sustainable finance 
framework (SWD(2023) 209), accompanying the Communication from the Commission on a sustainable finance framework 
that works on the ground  (COM(2023) 317).  
17  The  foundations  for  an  EU  sustainable  finance  framework  are  outlined  in  the  Action  Plan  on  Financing  Sustainable 
Growth  (COM/2018/097  final)  and  the  Strategy  for  Financing  the  Transition  to  a  Sustainable  Economy  (COM/2021/390 
final). 

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sustainable  economy.  The  benefits  from  applying  the  framework  will  increase  with  the 
progressive availability of data. This will coincide with the implementation of the European 
Single Access Point (ESAP)18, which will enable digital and open access to that data. 

Taxonomy reporting from the first year of application shows that the taxonomy is working on 
the ground. Data shows that companies in the STOXX Europe 600 index that reported some 
alignment with the taxonomy19, on average reported taxonomy alignment of around 23% for 
capital  expenditure,  24%  for  operational  expenditure  and  17%  for  revenues20.  This 
demonstrates  that  companies  can  invest  in  aligning  economic  activities  with  the  taxonomy 
irrespective of their starting points.  Financial  institutions and investors can already use this 
data to identify companies and sectors in transition and to provide transition related financing 
solutions.   

is  committed 

to  supporting 

The  Commission 
the  sustainable  finance  framework’s 
implementation  and  ensuring  that  the  tools  and  disclosures  work  in  practice.  Based  on 
stakeholder feedback, the Commission  will intensify its efforts  to  enhance  the framework’s 
usability and coherence, ensuring that the various elements are easy to use and administrative 
burdens  are  minimised  as  much  as  possible.  The  Commission  also  stands  ready  to  provide 
technical  support  to  Member  States  to  facilitate  this  implementation,  including  the 
forthcoming  European  sustainability  reporting  standards,  through  the  Technical  Support 
Instrument21. 

The  sustainable  finance  framework  is  inclusive  and  proportionate.  It  will  enable  small  and 
medium-sized  enterprises  (SMEs)  to  raise  finance  for  their  transition  while  minimising 
administrative burden. Non-listed SMEs, in particular micro enterprises, are not subject to the 
EU  sustainable  finance  regulatory  framework  due  to  their  size  and  administrative  capacity, 
however some SMEs may be interested in financing sustainable investments and can derive 
benefits  by  voluntarily  using  sustainable  finance  tools.  However,  SMEs  could  need  the 
support of their financing and value chain partners when considering their transition finance 
needs and when raising transition finance in practice. In this context, financial intermediaries 
should consider that the capacity of SMEs to provide detailed information may be limited and 
to apply the principle of proportionality when dealing with SME clients interested in raising 
finance for green investments. 

A  series  of  initiatives  and  targeted  measures  have  already  been  adopted  to  address  key 
usability  issues  and  questions  raised  by  stakeholders.  For  example,  the  Commission  has 
recently  clarified  the  interaction  between  the  Taxonomy  Regulation  and  the  Sustainable 
Finance Disclosure Regulation (SFDR) in relation to the concept of ‘sustainable investment’ 
and how operators should interpret the EU Taxonomy’s requirements in terms of compliance 

18 Proposal for a Regulation of the European Parliament and the Council establishing a European single access point 
providing centralised access to publicly available information of relevance to financial services, capital markets and 
sustainability, COM/2021/723 final. Political agreement reached by co-legislators on 23 May 2023. 
19 As of 17 May 2023, 63% of the STOXX Europe 600 undertakings have already disclosed their taxonomy eligibility and 
alignment for financial year 2022; source: Bloomberg. 
20 Nearly two in three companies that disclosed taxonomy-eligible capital expenditure reported a non-zero alignment figure 
and one in two companies that disclosed eligible revenue reported a non-zero degree of aligned revenue; Source: Bloomberg. 
21 Technical Support Instrument under Regulation (EU) 2021/240 of the European Parliament and of the Council of 10 
February 2021 establishing a Technical Support Instrument, (OJ L 57, 18.2.2021). 

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with minimum safeguards including social and governance aspects22. This complements the 
recent  publication of  a  Commission guidance on the interaction between the SFDR and the 
Benchmark Regulation regarding products passively tracking Climate Transition Benchmarks 
and Paris-aligned Benchmarks23.  

The Commission  will continue its work on enhancing the usability of the taxonomy  and of 
the  wider  sustainable  finance  framework,  with  the  support  of  the  European  Supervisory 
Authorities  (ESAs)  and  the  Platform  on  Sustainable  Finance,  and  based  on  further 
stakeholder  engagement.  The  comprehensive  assessment  of  the  SFDR  announced  in 
December  2022  is  an  important  part  of  these  efforts.  As  part  of  the  SFDR  assessment,  a 
public consultation will be launched in autumn 2023.  

Transition finance 

The transition  to  a  climate neutral  and sustainable economy  requires urgent  investments, at 
scale,  in  green  technologies  and  sustainable  economic  activities.  It  also  necessitates 
investments  in  transitional  activities,  in  line  with  the  Taxonomy  Regulation24,  where  green 
technologies are not yet available. The financial sector can support the development of such 
technologies.  Today’s  package  is  another  step  towards  a  globally  leading  legal  framework 
facilitating the financing of the transition.  

Transition  finance  can  be  raised  not  only  by  companies  with  the  highest  sustainability 
performance,  but  also  by  companies  with  different  starting  points  and  clear  sustainability 
objectives. The sustainable finance  regulatory  framework already  recognises investments  in 
the transitioning of economic activities, assets and companies to climate and environmental 
objectives, for instance through the taxonomy25. Based on the sustainability information and 
tools  provided  through  the  framework,  private  investors  and  financial  institutions  will 
progressively  be  able  to  identify  sustainable  investments  and  investments  in  transition 
projects more effectively and more systematically. These disclosures and tools also provide 
an opportunity for companies to articulate their sustainability targets and transition pathways 
to investors and stakeholders in a standardised manner.  

taxonomy 

technologically  and/or 
transitional  activities  for  which  no 
The 
economically  feasible  low  carbon  alternative  is  currently  available  but  where  significant 

includes 

22  The  Commission  Notice  C(2023)  3719  on  the  interpretation  and  implementation  of  certain  legal  provisions  of  the  EU 
Taxonomy  Regulation  and  its  link  to  the  Sustainable  Finance  Disclosure  Regulation  (SFDR)  clarifies  that  investments  in 
taxonomy-aligned ‘environmentally sustainable’ economic can be automatically qualified as ‘sustainable investments’ under 
the SFDR.  
23  The  Commission  adopted  a  set  of  Q&As  on  5  April  2023  to  clarify  that  the  SFDR  deems  products  passively  tracking 
Climate Transition Benchmarks and Paris-aligned Benchmarks to have ‘sustainable investments’, as defined in the SFDR, as 
their objective. 
24  Transitional  activities  are  defined  in  Article  10(2)  of  the  Taxonomy  Regulation  as  an  activity  for  which  there  is  no 
technologically  and  economically  feasible  low-carbon  alternative  where  it  supports  the  transition  to  a  climate-neutral 
economy  consistent  with  a  pathway  to  limit  the  temperature  increase  to  1,5°C  above  pre-industrial  levels,  including  by 
phasing out greenhouse gas emissions, in particular emissions from solid fossil fuels, and where that activity: has greenhouse 
gas emission levels that correspond to the best performance in the sector or industry; does not hamper the development and 
deployment of low-carbon alternatives; and does not lead to a lock-in of carbon-intensive assets, considering the economic 
lifetime of those assets.  
25 The taxonomy covers six environmental objectives: climate change mitigation; climate change adaptation; the sustainable 
use and protection of water and marine resources; the transition to a circular economy; pollution prevention and control; the 
protection and restoration of biodiversity and ecosystems. 

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improvements  can nevertheless  be achieved to  transition  to  a climate-neutral  economy26.  In 
addition,  the  taxonomy  recognises  investments  in  economic  activities  that  will  become 
taxonomy-aligned  in  5  (exceptionally  10)  years.  Such  investments  can  be  disclosed  as 
taxonomy-aligned capital expenditure and can be financed through the issuance of European 
green  bonds.  Such  bonds  can  then  be  included  in  the  composition  of  a  benchmark  or  of  a 
financial product with sustainability characteristics or pursing sustainability objectives.  

At the initial stage of the transition,  taxonomy alignment levels in terms  of revenue will be 
lower, especially for certain companies and economic sectors. However, alignment levels are 
already expected to be higher in terms of capital expenditure. This is confirmed by first data 
showing  that  a  large  number  of  companies  are  reporting  taxonomy-aligned  capital 
expenditure  that  is  materially  higher  than  their  aligned  revenue,  especially  in  high-emitting 
sectors  where  transition  finance  is  most  needed,  and  that  average  taxonomy  alignment  for 
certain  sectors  is  significantly  higher  in  terms  of  capital  expenditure  compared  to  revenue. 
For  instance,  in  the  utilities  sector  a  70%  average  aligned  capital  expenditure  compared  to 
40%  aligned  revenue  and  in  the  energy  sector  a  23%  average  aligned  capital  expenditure 
compared to 7% aligned revenue27.   

There are also important synergies across tools and disclosures, for instance in the context of 
companies deciding to  set  transition  targets  and  develop  transition  plans. More than 13 000 
companies worldwide have set transition targets  to date28, with some opting for a transition 
plan  to  specify  these  targets.  The  forthcoming  European  sustainability  reporting  standards 
will ensure that companies can communicate their climate transition plans and targets, if they 
have those, in a standardised manner. This can help these companies receive financing from 
financial  market  actors  to  support  their  transition  efforts.  The  Platform  on  Sustainable 
Finance will monitor market practices related to transition targets and plans as well as capital 
flows towards the EU’s sustainability objectives. 

Taxonomy Delegated Acts on environment and climate 

The taxonomy is a cornerstone of the EU’s sustainable finance framework and an important 
market transparency tool that helps direct investments to the economic activities most needed 
for  a  green  transition.  The  Taxonomy  Climate  Delegated  Act  covering  climate  change 
mitigation and adaptation has been up and running since January 2022 and includes a total of 
107 economic activities that are responsible for 64% of greenhouse gas emissions in the EU-
2729.  The  adoption  of  the  Taxonomy  Environmental  Delegated  Act,  which  includes  criteria 
for the remaining four environmental objectives, is a crucial step in developing the taxonomy 
framework.  The  inclusion  of  more  economic  activities  covering  all  six  environmental 
objectives,  and  consequently  more  economic  sectors  and  companies,  will  increase  the 
potential of sustainable investments in the EU. To complement this, targeted amendments to 
the  Taxonomy  Climate  Delegated  Act  expand  on  economic  activities  not  included  so  far30. 

26 See footnote 24. 
27  Data  based  on  taxonomy-alignment  reporting  of  455  companies  up  to  16  May  2023;  source:  GS  SUSTAIN  Goldman 
Sachs Global Investment Research. 
28 Source: Global Climate Action Portal, United Nations Framework Convention on Climate Change. 
29  Based  on  NACE  Rev.  2  codes  included  in  the  Taxonomy  Climate  Delegated  Act  and  data  from  Eurostat  2021, 
https://ec.europa.eu/eurostat/databrowser/view/env_ac_ainah_r2/default/table?lang=en. 
30 The delegated act also makes targeted amendments and clerical corrections to selected existing climate criteria. 

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These  additions  will  facilitate  investments  in  green  technologies,  net-zero  manufacturing 
capacity and renewable energy supply, reinforcing the EU’s industrial policy as announced in 
the Green Deal Industrial Plan for the Net-Zero Age31. 

The  delegated  acts  are  informed  to  a  very  large  extent  by  the  recommendations  of  the 
Platform  on Sustainable  Finance32. However, the package presented today  does  not  include 
all the economic activities for which the Platform made recommendations. The Commission 
has  prioritised  those  economic  activities  with  the  greatest  potential  to  make  a  substantial 
contribution,  and  for  which  it  was  possible  to  endorse  or  refine  the  recommended  criteria 
within  a  short  timeframe.  Economic  activities  that  require  a  deeper  assessment  and 
calibration of criteria  will  continue to  be assessed and reviewed  by the  Commission  with  a 
view to addressing them at a later stage.  

The  taxonomy  defines  the  criteria  that  economic  activities  need  to  achieve  to  become 
sustainable  and  therefore  sets  out  the  path  of  their  transformation.  The  level  of  taxonomy-
aligned  assets  will  increase  as  the  transition  to  a  climate  neutral  and  sustainable  economy 
progresses. New economic sectors and activities will be added, and existing ones refined and 
updated,  where  needed  in  line  with  regulatory  and  technological  developments;  this  is 
something that the Platform on Sustainable Finance will provide advice on under its current 
mandate33.  

The taxonomy  is  above all  a tool for companies, to  facilitate their  access  to  finance for the 
green  transition,  and  for  the  financial  sector,  to  support  the  building  of  sustainable  finance 
portfolios and measure the degree of sustainability of investments. It is not a mandatory list to 
invest in. Investors can also use the taxonomy to take better-informed investment decisions. 
They  can  still  choose  to  invest  in  companies  that  carry  out  activities  that  have  different 
degrees  of  environmental  performance,  or  activities  that  do  not  comply  with  the  taxonomy 
criteria.  The  mere  fact  that  a  company  does  not  have  taxonomy-aligned  activities  does  not 
mean that conclusions can be drawn regarding the company’s environmental performance or 
its ability to access finance. Companies can voluntarily use the taxonomy as a tool to specify 
transition targets for economic activities, for instance in combination with a  transition plan. 
The accompanying Commission Recommendation on transition finance further explains how 
the taxonomy can be voluntarily used for that purpose.  

For  large  non-financial  undertakings,  disclosure  of  the  degree  of  taxonomy  alignment 
regarding  climate  objectives  began  in  2023.  Disclosures  will  be  phased-in  over  the  coming 
years  for  other  actors  and  environmental  objectives.  The  rollout  of  the  taxonomy  and 
associated  disclosure  requirements  will  continue  to  be  developed  with  a  view  to  helping 
SMEs make use of that framework on a voluntary basis, without imposing burdens on them. 

31  Communication  from  the  Commission  to  the  European  Parliament,  the  European  Council,  the  Council,  the  European 
Economic  and  Social  Committee  and  the  Committee  of  Regions,  A  Green  Deal  Industrial  Plan  for  the  Net-Zero  Age, 
COM(2023) 62 final. 
32 See https://finance.ec.europa.eu/system/files/2022-03/220330-sustainable-finance-platform-finance-report-remaining-
environmental-objectives-taxonomy-annex_en.pdf and https://finance.ec.europa.eu/system/files/2022-11/221128-
sustainable-finance-platform-technical-working-group_en.pdf. The Platform’s reports inform the work of the Commission, 
but they are of an advisory nature. They do not bind the Commission on the inclusion of specific sectors and activities in the 
EU Taxonomy.   
33  Stakeholders  will  also  have  an  opportunity  to  notify  the  Platform  on  Sustainable  Finance  about  activities  they  believe 
should be covered in the EU Taxonomy. 

7 

 
 
 
 
 
                                                           
In parallel, the Commission will continue to engage in global forums to encourage the uptake 
of taxonomies internationally and refine approaches for their interoperability. The appropriate 
use  of  taxonomy  principles  will  also  continue  to  feature  as  part  of  the  work  of  the 
International Platform on Sustainable Finance. 

ESG ratings and credit ratings 

With  the  implementation  of  the  sustainable  finance  framework  progressing,  it  is  time  to 
consider  the  functioning  of  the  ESG  ratings  market34.  Transparent,  reliable  and  qualitative 
ESG ratings contribute to the effectiveness and integrity of the financial markets and investor 
protection.  

Following consultations, studies and outreach, today the Commission is adopting a proposal 
for  a  regulation  on  the  functioning  of  the  ESG  ratings  market.  The  key  aim  of  the 
Commission proposal is to increase transparency on ESG ratings methodologies, objectives, 
characteristics and data sources. Additionally, it aims to increase clarity on the operations of 
ESG  rating  providers,  in  particular  to  prevent  and  mitigate  potential  risks  associated  with 
conflicts  of  interest.  A  more  transparent  ESG  rating  ecosystem  will  lead  to  a  clearer 
identification of the three dimensions of sustainability35.  

Based on the set of recommendations for ESG rating providers and regulators published by 
the  International  Organization  of  Securities  Commissions  (IOSCO)  in  November  2021,  the 
proposal  provides  for  the  authorisation  and  supervision  of  ESG  rating  providers  by  the 
European Securities and Markets Authority (ESMA). Furthermore, it provides requirements 
on disclosures around their methodologies and objectives of ratings, and introduces principle-
based organisational  requirements on their activities.  Given the structure and complexity of 
the  ESG  ratings  market,  which  includes  many  smaller  ESG  rating  providers,  the  initiative 
incorporates  a  number  of  safeguards  and  mitigating  measures  for  those  smaller  market 
players.  The  objective  is  to  foster  accessibility  and  promote  innovation  in  the  market, 
particularly during the initial phase of the Regulation’s application. 

Recent  years  have  also  brought  changes  and  improvements  related  to  disclosure  and 
incorporation  of  ESG  factors  in  credit  ratings.  Some  credit  rating  agencies  are  making 
disclosures above what is required by Regulation 1060/2009 on credit rating agencies36 and 
by the ESMA Guidelines. As a result, the Commission is seeking advice from ESMA on the 
rules  on  the  presentation  of  credit  ratings  and  rating  outlooks,  as  well  as  on  the  rules  for 
assessing  the  compliance  of  methodologies  used  by  credit  rating  agencies.  This  aims  to 

34 The proposal does not cover ESG data providers. The evidence for regulatory intervention in this area was less convincing 
and  a  number  of  other  initiatives,  such  as  the  CSRD  or  the  European  Single  Access  Point  (ESAP),  should  contribute  to 
improving the quality and availability of sustainability data. This initiative also does not cover internal ratings developed by 
financial  institutions  such  as  banks  or  asset  managers  as  they  are  used  for  investment  decisions  concerning  their  own 
products, risk fewer potential conflicts of interests and do not serve the same purpose as ESG ratings, which are marketed at 
institutional investors and companies. 
35 The Commission is conducting a study to assess the current state of play of the social dimension of ESG investing in the 
EU, focusing on investment gaps, challenges faced by market participants and market practices. The study will explore ways 
to strengthen the social investment framework in capital markets, identifying obstacles and possible policy options for future 
action. 
36  Regulation  (EC)  No  1060/2009  of  the  European  Parliament  and  of  the  Council  of  16  September  2009  on  credit  rating 
agencies (OJ L 302, 17.11.2009, p. 1). 

8 

 
 
 
 
 
                                                           
address  shortcomings  related  to:  (i)  how  ESG  factors  are  incorporated  into  methodologies; 
and (ii) disclosures of how ESG factors impact credit ratings37. 

Forthcoming European sustainability reporting standards 

Sustainability is an important factor in the competitiveness of companies in the longer term, 
and sustainability and competitiveness can go hand in hand.  Sustainability disclosures are a 
critical source of information for financial institutions to help them direct capital to transition 
investments  and  create  financial  products  with  sustainability  objectives.  The  CSRD  is  an 
important  milestone  in  providing  transparency  on  sustainability  risks,  impacts  and 
opportunities for undertakings. It is also the basis for companies to provide reliable, accurate 
and  comparable  high-quality  sustainability  information  to  financial  market  participants  and 
other stakeholders. 

The  standardisation  of  sustainability  information  to  be  reported  by  companies  is  a  key 
element  of  the  legal  framework  and  will  soon  be  possible  with  the  forthcoming  European 
sustainability  reporting  standards  (ESRS).  The  Commission 
is  currently  consulting 
stakeholders on the final version of a first set of ESRS based on draft standards prepared by 
EFRAG.  The  standards  will  provide  the  guidance  companies  need  when  determining  what 
data  to  report  and  how  to  ensure  that  the  information  they  supply  is  material  to  them  and 
useful for the financial institutions. The Commission and EFRAG have been working closely 
with  the  International  Sustainability  Standards  Board  (ISSB)  and  the  Global  Reporting 
Initiative  (GRI) to  ensure a very  high level of interoperability between the different  sets  of 
standards.  It  is  the  ultimate  intention  of  the  Commission  that  when  a  company  reports 
sustainability information in accordance with the ESRS, they will be deemed to be compliant 
with global standards.  

Sustainability reporting is expected to enhance undertakings’ access to financial capital  and 
identification  and  management  of  own  risks  and  opportunities,  helping  to  increase 
competitive advantage by contributing to the transition. The Commission has made efforts to 
ensure  the  delegated  ESRS  act  will  meet  the  intended  policy  objectives  in  a  proportionate 
manner,  minimising  regulatory  burdens  as  much  as  possible.    The  Commission  has 
considered  the  approach  to  materiality,  additional  phase-ins,  making  some  disclosures 
voluntary,  additional 
further 
interoperability with the ISSB, and will carefully assess the comments received in the public 
consultation before finalising the delegated act. Uniform standards will also help to limit the 
growing costs that companies face from having to meet the multiple individual demands for 
information from different stakeholders. 

requirements,  and 

some  disclosure 

flexibilities 

in 

Furthermore, separate  standards will be developed for listed SMEs  which are proportionate 
and relevant to the capacities and the characteristics of SMEs and to the scale and complexity 
of their activities. The standards will focus on the financing-relevant information needed by 
financial  institutions38  and  will  also  constitute  a  limit  for  the  information  which  ESRS  can 

37 Commission Delegated Regulation (EU) No 447/2012 of 21 March 2012 supplementing Regulation (EC) No 1060/2009 
of the European Parliament and of the Council on credit rating agencies. 
38 In this regard, the obligation to report sustainability information for listed SMEs begins to apply only from the 2026 
financial year onward. The Directive provides a further two-year opt-out, meaning that listed SMEs do not have to report 
sustainability information until the 2028 financial year. 

9 

 
 
 
 
 
                                                           
require large undertakings to disclose from SMEs in their value chains. This is an important 
safeguard  specified  in  the  CSRD  to  limit  the  indirect  effects  on  SMEs  of  value  chain 
reporting requirements imposed on large undertakings. Non-listed SMEs, which are not in the 
scope  of  the  Directive,  may  nevertheless  face  increased  information  requests  from  larger 
companies  in  their  value  chains  and  from  financial  institutions.  The  Commission 
acknowledges  the  challenge  that  non-listed  SMEs  may  face  in  this  regard  due  to  their  size 
and  more  limited  resources.  The  Commission  therefore  encourages  large  corporates  and 
financial intermediaries to apply the principle of proportionality when engaging with SMEs 
and to exercise restraint when requesting information from SME value chain partners.  

In  addition, SMEs may  want  to  report  key  sustainability information  to  raise sustainable  or 
transition finance. To that end, one of the Commission’s priorities is for EFRAG to develop a 
voluntary  standard  for  non-listed  SMEs,  which  may  use  it  to  standardise  the  sustainability 
information they  wish to report, and which can make it easier for them to  participate in the 
transition to a sustainable economy.  

Conclusion 

Early evidence shows that the EU sustainable finance agenda is working on the ground and 
that  sustainable  finance  tools  are  starting  to  facilitate  investments  into  the  transition  to  a 
climate  neutral  and  sustainable  economy.  The  EU  sustainable  finance  framework  will 
continue  to  be  developed  and  refined  to  ensure  its  effectiveness  in  achieving  its  intended 
goals and in supporting the objectives of the European Green Deal. 

The  Commission  is  committed  to  strong  cooperation  at  international  level.  Developing 
sustainable finance frameworks together with other international partners and jurisdictions to 
the  largest  extent  possible  will  help  ensure  international  interoperability,  enable  the  EU  to 
fully leverage the potential of international finance for the transition, and avoid complexity, 
fragmented markets and extra costs for businesses.  

The Commission will continue to provide practical guidance to market players, to support the 
application of existing rules in a clear and effective way. It will also continue to assess gaps 
and  usability  concerns  and  uncertainties  and  how  to  address  them.  Specific  focus  will  be 
placed  on  assessing  how  to  make  the  sustainable  finance  framework  more  usable  and 
inclusive for SMEs without overburdening these firms. Another priority will be to continue 
work  on  facilitating  transition  finance,  including  by  exploring  how  to  better  integrate  the 
taxonomy into the framework in a simple and user-friendly way. The Platform on Sustainable 
Finance and the European Supervisory Authorities will provide key input in this context. A 
set  of  outreach  activities  to  public  and  private  stakeholders  will  be  conducted  for  these 
purposes. 

This  work  will  also  involve  close  cooperation  with  international  partners  through  the 
International  Platform  on  Sustainable  Finance  and  in  the  G20  as  well  as  with  Multilateral 
Development Banks and EU Development Finance Institutions, notably in the context of the 
Neighbourhood,  Development  and  International  Cooperation  Instrument  (NDICI  –  Global 
Europe) and the Global Gateway.  The Commission will continue to work on how it can help 
partner  countries,  in  particular  Low-  and  Middle-Income  Countries,  to  develop  robust  and 
credible  sustainable  finance  frameworks  with  the  aim  to  improve  global  comparability  and 
interoperability.  

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The  next  steps  outlined  above  will  further  solidify  the  sustainable  finance  framework’s 
practical  application  by  companies,  financial  intermediaries  and  investors,  thereby  enabling 
the scaling up of the sizeable investment needed to further the green transition and pave the 
way towards a climate neutral and sustainable economy by 2050. 

11