EU Platform on Sustainable Finance Releases Proposals to Reduce EU Taxonomy Reporting Burden by a Third
The Platform on Sustainable Finance (PSF), an expert group mandated by the European Commission to advise it on the development of sustainable finance policies, announced today the publication of a new report with comprehensive recommendations aimed at simplifying the EU Taxonomy.
The recommendations come amidst a major push by the EU Commission to reduce administrative and reporting burdens on companies, with the Taxonomy among the first in a series of sustainability reporting regulations to be targeted in an upcoming “Omnibus” package. According to the PSF, the new recommendations included in the report could lead to a reduction of more than a third in the Taxonomy reporting burden for companies, and “a significant simplification for financial institutions.”
The EU Taxonomy is part of the EU Action Plan on Sustainable Finance, establishing a classification system enabling the categorization of economic activities that play key roles in contributing to at least one of six defined environmental objectives, and that Do No Significant Harm (DNSH) to the other objectives.in order to help mobilize capital flows to sustainable investments and support the financing of the sustainable transition. The six objectives include climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems.
The Taxonomy entered into effect in 2022 with disclosure requirements on the first two objectives, climate change mitigation and adaptation, based on the EU Taxonomy Climate Delegated Act, and with the other four objectives applying as of the beginning of 2024, based on the Environmental Delegated Act.
The Platform on Sustainable Finance was mandated by the EU Commission in 2023 to enhance the effectiveness of the Taxonomy, by simplifying reporting, improving data access, and ensuring coherence within the wider sustainable finance and regulatory framework. The new report follows two years of research, analysis and outreach, including stakeholder feedback from investors, banks, insurers, corporates, SMEs, auditors, and consultants.
The new report provides four “core proposals” aimed at simplifying Taxonomy reporting, including recommendations targeting a one third reduction in corporate reporting burden, a simplified green asset ratio (GAR – referring to the reported share of a bank’s assets that are aligned with the Taxonomy) that encourages green and transition lending, refining the approach to Do No Significant Harm (DNSH) criteria, and recommendations focused on helping SMEs to access sustainable finance.
Key recommendations included within these core proposals include introducing a lighter compliance assessment process for DNSH criteria, temporarily introducing a “comply or explain” approach to the DNSH assessment of the Turnover Key Performance Indicator (KPI), allowing the use of proxies and estimates across all assets for reporting on the GAR and green investment ratio (GIR), introducing a materiality threshold for reporting on KPIs including turnover, opex, capex and the combined KPIs of financial companies, and defining clear guidelines for the use of estimates within the taxonomy framework. In order to help SMEs access sustainable finance, the recommendations include adopting a streamlined and voluntary approach for banks and investors’ exposures to unlisted SMEs, and adopting a simplified approach to the Taxonomy for listed SMEs.
In a post announcing the release of the report, Helena Viñes Fiestas, Chair of the Platform on Sustainable Finance, said:
“When we started our mandate, the European Commission tasked us with evaluating how to simplify the Taxonomy, addressing what isn’t working, enhancing what is, and ensuring its effectiveness on the ground. This report delivers exactly that—practical, evidence-based recommendations for a more efficient but simpler framework.”
Click here to access the report.