Breaking down the EU Taxonomy's technical screening criteria: What you need to know
If you're a business operating in the European Union, you've likely heard of the EU Taxonomy. The EU Taxonomy is a set of rules and guidelines designed to help businesses identify which economic activities are considered environmentally sustainable. The goal of the EU Taxonomy is to promote sustainable finance and investment in support of the EU's environmental objectives and sustainable development goals.
One of the key components of the EU Taxonomy is its technical screening criteria. In this blog post, we'll break down what the technical screening criteria are, why they matter, and how they can impact your business.
What are the technical screening criteria?
The technical screening criteria are a set of rules and metrics used to evaluate whether an economic activity can be considered environmentally sustainable under the EU Taxonomy. These criteria cover a wide range of environmental objectives, including climate change mitigation and adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, protection and restoration of biodiversity and ecosystems, and pollution prevention and control.
The EU Taxonomy's technical screening criteria are structured around a two-tier approach. The first tier consists of general criteria, while the second tier includes sector-specific criteria that apply to specific economic activities.
The general criteria cover five key areas, however some activities may only have general criteria for two or three objectives while others may not be applicable:
- Contribution to climate change mitigation and adaptation
- Sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
The sector-specific criteria, on the other hand, focus on the particular environmental challenges and opportunities associated with different economic activities, such as energy production, agriculture, or manufacturing.
The following is an example of Technical screening criteria template published by the Platform on Sustainable Finance.
Why do the technical screening criteria matter?
The technical screening criteria are important because they help ensure that economic activities claiming to be sustainable are truly meeting environmental standards. The EU Taxonomy is a key tool for promoting sustainable finance and investment, and the technical screening criteria are essential for maintaining the integrity of the taxonomy.
The EU has set a goal of achieving a 55% reduction in greenhouse gas emissions by 2030, and the EU Taxonomy is a key tool for driving progress toward this goal. By ensuring that economic activities meet the technical screening criteria, the EU Taxonomy can help promote a more sustainable and climate-resilient economy.
How can the technical screening criteria impact your business?
If your business is involved in economic activities that are not considered environmentally sustainable under the EU Taxonomy, you may find it difficult to attract investment and financing from sustainable finance sources. On the other hand, if your business is able to meet the technical screening criteria, you may be able to tap into the growing demand for sustainable investments and financing.
Meeting the technical screening criteria can also help your business reduce its environmental impact and improve its long-term sustainability. By focusing on sustainable practices and investing in sustainable technologies, your business can not only meet the technical screening criteria, but also help drive progress toward the EU's environmental objectives and sustainable development goals.
What are some examples of economic activities that meet the technical screening criteria?
Some examples of economic activities that may meet the technical screening criteria include renewable energy production, sustainable transportation infrastructure, energy-efficient buildings, and sustainable agricultural practices. However, it's important to note that meeting the technical screening criteria requires a comprehensive evaluation of all relevant environmental factors, and not all activities within a given sector may be considered environmentally sustainable.
For example, in the case of renewable energy production, the EU Taxonomy requires that the activity contributes to the reduction of greenhouse gas emissions and meets certain sustainability criteria in terms of land use, biodiversity, and water use. Similarly, in the case of sustainable transportation infrastructure, the activity must contribute to the reduction of greenhouse gas emissions and promote circular economy principles, such as minimizing waste and maximizing the use of recycled materials. Energy-efficient buildings must meet certain energy performance standards and incorporate sustainable design principles, such as using sustainable materials and optimizing the use of natural light and ventilation.
In the case of sustainable agricultural practices, the criteria may include reducing the use of pesticides and fertilizers, promoting soil health and biodiversity, and conserving water resources. Sustainable agriculture also involves practices that support the long-term viability of the farming industry, such as crop rotation and diversification, which can help improve soil health and reduce the risk of crop failures due to pests or disease.
Overall, the technical screening criteria for sustainable economic activities are designed to ensure that these activities contribute to environmental sustainability and social welfare in a comprehensive and meaningful way. As such, these criteria are an important tool for investors and policymakers who are seeking to promote sustainable economic development and mitigate the negative impacts of climate change and other environmental challenges.
If you want to learn more, we recommend to check out the report published by the Platform on Sustainable Finance.
In conclusion, the EU Taxonomy's technical screening criteria are an important tool for promoting sustainable finance and investment in the European Union. By understanding the technical screening criteria and striving to meet them, businesses can position themselves for success in the growing sustainable finance market.