The EU Taxonomy is a new regulation that constitutes the cornerstone of the EU Sustainable Finance Action Plan. It aims to create a harmonized understanding of what actually constitutes ‘green activities’. The Taxonomy provides a common language and uniform criteria to identify the extent to which economic activities may be considered environmentally sustainable.
Ultimately, its aim is to reorientate capital flows towards lower-emission economic activities that will help decarbonize the economy. With this in its armory, the EU hopes to reach its 2030 climate targets and the ultimate goal of net-zero greenhouse gas emissions by 2050.
The Taxonomy defines the minimum criteria that economic activities should comply with in order to be considered environmentally sustainable. These activities should contribute substantially to one or more of the following six environmental objectives without doing any significant harm to any of the other five. These are:
In addition, activities should be performed in compliance with minimum safeguards, meaning the standards embedded in the OECD Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, with specific reference to the International Labor Organization’s Core Labor Conventions.
Only those activities contributing to the first two environmental objectives – climate change mitigation and adaptation – have so far been defined. In November 2020, the European Commission’s Platform on Sustainable Finance published the draft Delegated Act under the Taxonomy Regulation with the technical screening criteria for the 90 climate mitigation and 98 climate adaptation activities. The European Commission is now working on the final technical criteria to be adopted under a Delegated Act that supplements the Taxonomy Regulation.
Large listed companies incorporated in the EU are required to report which part of their revenue and expenditure is in line with the Taxonomy. These corporate disclosures are being introduced in two phases. In 2022, companies have started disclosing the percentage of revenues and expenditure in economic activities that are listed in the Taxonomy (i.e. eligible activities) as contributing to the climate change mitigation and climate change adaptation objectives.
From 2023 onwards, companies must also assess whether these eligible activities also comply with the technical screening criteria of the Taxonomy (i.e. aligned activities) covering all six environmental objectives.
The technical screening criteria sets a high bar on the environmental performance that activities must meet in order to evidence their substantial contribution to an environmental objective, and demonstrate that they do not significantly harm any other objective. As a result, there is the possibility that the percentages of Taxonomy-aligned figures that will be reported in 2023 are lower than the Taxonomy-eligible figures disclosed in 2022.
Investors will have to disclose the percentage of their funds’ assets under management that sit within Taxonomy-aligned activities. Only funds classified as Article 8 or 9 are in scope for disclosures, i.e. those funds with environmental characteristics, or those pursuing a sustainability objective. This reporting requirement already entered into force in January 2022 under Level I legislation. From January 2023 onwards, financial products will disclose more granular information under Level II disclosures.
At Robeco, we believe that the Taxonomy will have a positive impact on the market. It will provide a common language for institutional and retail investors, issuers, policymakers and regulators. This will bring standardization and help overcome greenwashing in sustainable finance. Moreover, the disclosures on the Taxonomy alignment of investments will enhance the reliability of information, comparability and transparency on the level sustainability claims of an investment.
For each of the eligible economic activities, the Taxonomy provides detailed technical screening criteria that must be complied with in order to determine that an activity is Taxonomy-aligned. The activity-level focus is something new for most market participants. Whereas traditional ESG scores of companies focus on the company’s performance, the Taxonomy demands a deeper level of granularity in order to assess the eligible activities that companies undertake.
For example, to assess the level of alignment of an electric utility involved in energy generation from hydro, biomass and wind energy, the Taxonomy alignment will require testing each one of these activities against their respective technical screening criteria. Only the revenues or expenditures attributed to the activities that meet the criteria will count towards the total percentage of Taxonomy-aligned company revenues and expenditures.
This assessment requires data that is currently not disclosed by companies. We view the lack of data as the biggest obstacle for a broad and consistent Taxonomy implementation. From 2022, large listed European companies are expected to report revenue and expenditure data broken down according to the Taxonomy’s classification. However, non-European companies will not be legally required to provide such disclosures, and data gaps from these companies will likely remain over the long term.
The European Commission is considering the establishment of an EU-wide digital access platform – the EU Single Access Point (ESAP) – where companies’ financial and non-financial information could be accessed free of charge by the public. Robeco sees the ESAP as a good opportunity to address the missing sustainability data required under the Taxonomy and other existing and forthcoming legislation, such as the Sustainable Finance Disclosure Regulation and the Non-Financial Reporting Directive.
There still is a long way to go before we are able to judge the successful adoption of the Taxonomy. In the near term, all eyes are set on the first round of Level II disclosures due in 2023. Preliminary research shows us that most funds will likely report low levels of Taxonomy alignment.
Research commissioned by the German Ministry of the Environment, Nature Conservation and Nuclear Safety assessed the alignment of European companies traded in the STOXX 50, CAC 40 and DAX 30 indices. It found that less than 30% of the revenue within these indices come from activities covered by the Taxonomy, and less than 2% fully met the technical criteria.
We believe that once the Taxonomy is fully developed, covering all six environmental objectives, more economic activities will become eligible. Once companies disclose all the data needed, investors will also be better able to identify eligible activities.
The Taxonomy is only step one of the wider EU Sustainable Finance Action Plan and is viewed as a key building block for further actions. It forms the basis of the EU Ecolabel for retail funds that is still under development.
In 2020, the Technical Expert Group for Sustainable Finance published its final report on a EU Green Bond Standard, which provided recommendations for the establishment of a voluntary certification scheme which assures that the use of proceeds is fully aligned with the Taxonomy. In the second quarter of 2021, the EU Commission is planning a legislative proposal for the adoption of such a standard.
Financial institutions and European companies are now at the start of a process to standardize and formalize ESG data across market participants. But we are optimistic about the benefits that the Taxonomy, and the other actions under the Sustainable Finance Action Plan can bring in the long term. Looking beyond compliance, the Taxonomy will help investors identify opportunities from the energy transition and achieve sustainable investment goals.
This information is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation.
The contents of this document have not been reviewed by the Monetary Authority of Singapore (“MAS”). Robeco Singapore Private Limited holds a capital markets services license for fund management issued by the MAS and is subject to certain clientele restrictions under such license.
An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.
Warning/Important note: This website contains information which is only available to qualified investors as defined below. If you are not a qualified investor, please click “I Disagree” to leave the website.
By clicking on "I agree", I declare that:
1 - This website may only be accessed directly or indirectly by the following persons in Singapore:
1) “institutional investor” under section 304 of the Securities and Futures Act (Cap.289)(“SFA”), which means:
(i) the Government; (ii) a statutory board as may be prescribed by regulations made under section 341 of the SFA; (iii) an entity that is wholly and beneficially owned, whether directly or indirectly, by a central government of a country and whose principal activity is (A) to manage its own funds; (B) to manage the funds of the central government of that country (which may include the reserves of that central government and any pension or provident fund of that country); or (C) to manage the funds (which may include the reserves of that central government and any pension or provident fund of that country) of another entity that is wholly and beneficially owned, whether directly or indirectly, by the central government of that country; (iv) any entity (A) that is wholly and beneficially owned, whether directly or indirectly, by the central government of a country; and (B) whose funds are managed by an entity mentioned in sub-paragraph (iii); (v) a central bank in a jurisdiction other than Singapore; (vi) a central government in a country other than Singapore; (vii) an agency (of a central government in a country other than Singapore) that is incorporated or established in a country other than Singapore; (viii) a multilateral agency, international organisation or supranational agency as may be prescribed by regulations made under section 341 of the SFA; (ix) a bank that is licensed under the Banking Act (Cap.19); (x) a merchant bank that is approved as a financial institution under section 28 of the Monetary Authority of Singapore Act (Cap.186); (xi) a finance company that is licensed under the Finance Companies Act (Cap.108); (xii) a company or co-operative society that is licensed under the Insurance Act (Cap.142) to carry on insurance business in Singapore; (xiii) a company licensed under the Trust Companies Act (Cap.336); (xiv) a holder of a capital markets services licence; (xv) an approved exchange; (xvi) a recognised market operator; (xvii) an approved clearing house; (xviii) a recognised clearing house; (xix) a licensed trade repository; (xx) a licensed foreign trade repository; (xxi) an approved holding company; (xxii) a Depository as defined in section 81SF of the SFA; (xxiii) an entity or a trust formed or incorporated in a jurisdiction other than Singapore, which is regulated for the carrying on of any financial activity in that jurisdiction by a public authority of that jurisdiction that exercises a function that corresponds to a regulatory function of the Authority under this Act, the Banking Act (Cap.19), the Finance Companies Act (Cap.108), the Monetary Authority of Singapore Act (Cap.186), the Insurance Act (Cap.142), the Trust Companies Act (Cap.336) or such other Act as may be prescribed by regulations made under section 341 of the SFA; (xxiv) a pension fund, or collective investment scheme, whether constituted in Singapore or elsewhere; (xxv) a person (other than an individual) who carries on the business of dealing in bonds with accredited investors or expert investors; (xxvi) the trustee of such trust as the Authority may prescribe, when acting in that capacity; or; (xxvii) such other person as the Authority may prescribe.
2) “relevant person” under section 305(1) of the SFA, which means:
(i) An accredited investor; (ii) a corporation the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; (iii) a trustee of a trust the sole purpose of which is to hold investments and each beneficiary of which is an individual who is an accredited investor; (iv) an officer or equivalent person of the person making the offer (such person being an entity) or a spouse, parent, brother, sister, son or daughter of that officer or equivalent person; or (v) a spouse, parent, brother, sister, son or daughter of the person making the offer (such person being an individual).
3) any person who acquires the units [in a collective investment scheme] as principal if the offer is on terms that the units may only be required at a consideration of not less than $200,000 (or its equivalent in a foreign currency) for each transaction, whether such amount is to be paid for in cash or by exchange of units in a collective investment scheme, securities, securities-based derivatives contracts or other assets, and if the following condition is satisfied: (i) the offer is not accompanied by an advertisement making an offer or calling attention to the offer or intended offer; (ii) no selling or promotional expenses are paid or incurred in connection with the offer other than those incurred for administrative or professional services, or by way of commission or fee for services rendered by any of the persons specified in section 302B(1)(d)(i) to (vi) of the SFA; and (iii) no prospectus in respect of the offer has been registered by the Authority or, where a prospectus has been registered (A) the prospectus has eAccxpired pursuant to section 299 of the SFA; or (B) the person making the offer has before making the offer 1. informed the Authority by notice in writing of its intent to make the offer in reliance on the exemption under this subsection; and 2. taken reasonable steps to inform in writing the person to whom the offer is made that the offer is made in reliance on the exemption under this subsection.
4) Or otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
If you are not any of the types of persons described above, you are not authorized to enter this website and you should leave this website immediately.
2 Terms and Conditions
You acknowledge that you have read these Terms and Conditions (“Terms”) prior to accessing the website located at www.robeco.com/sg (“Website”) and you agree to be bound by the Terms. If you do not agree to all of the Terms, you are not an authorised user and you should not use the Website. The Website is owned by Robeco Singapore Private Limited (company registration number: UEN. 201541306Z), which is licensed by the Monetary Authority of Singapore (“MAS”) pursuant to the Securities and Futures Act (Cap.289) (“SFA”) of Singapore, and is managed by Robeco Singapore Private Limited and/or its affiliates (collectively, as “Robeco”). The Website is intended for and should be accessed by institutional investors or accredited investors (as defined under Section 4A of the SFA) of Singapore. The Website is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject the Robeco to any registration or licensing requirement within such jurisdiction. It is your responsibility to observe all applicable laws, rules and regulations of any relevant jurisdiction. The content contained in the Website is owned by Robeco and/or its information providers and is protected by applicable copyrights, trademarks, service marks, and/or other intellectual property rights. You may not copy, distribute, modify, post, frame or link the Website, including any text, graphics, video, audio, software code, user interface, design or logos. You may not distribute, modify, transmit, reuse, repost, or use the content of the Website for public or commercial use, including all text, images, audio and/or video. Robeco may terminate your access to the Website for any reason, without prior notice. Neither Robeco, nor any of its associates, nor any director, officer or employee accepts any liability whatsoever for any loss arising directly or indirectly from the access of the Website. You agree to indemnity and hold Robeco, its associates, directors, officers or employees harmless against any and all claims, losses, liability, costs and expenses arising from your use of the Website due to violation of the Terms. Robeco reserves the right to change, modify, add or remove any parts of the Terms at any time and for any reason. The Terms shall deemed to be effective immediately upon posting. The Terms shall be governed by, and shall be construed in accordance with, the law of Singapore.
The Website has not been reviewed by the MAS. Accordingly, the Website may not be accessed directly or indirectly to persons in Singapore other than (i) to an institutional investor under Section 304 of the SFA, (ii) to a relevant person pursuant to Section 305(1), or any person pursuant to Section 305(2), and in accordance with the conditions specified in Section 305, of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Nothing in the Website constitutes tax, accounting, regulatory, legal or investment advice. The Website is for informational purposes only and should not be construed as an offer to sell or an invitation to buy any securities or products, nor as investment advice or recommendation or for the purpose of soliciting any action in relation to Robeco’s businesses, or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such an offer and solicitation. Any reproduction or distribution of information from the Website, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accessing to the Website, you agree to the foregoing.
The funds referred to in the Website are for information only. It is not a recommendation or investment advice, nor does it mean the funds is suitable for all investors. The contents of the website is not reviewed by the MAS. Any decision to participate in the funds should be made only after reviewing the sections regarding investment considerations, conflicts of interest, risk factors and the relevant Singapore selling restrictions. You should consult your professional adviser if you are in doubt about the stringent restrictions applicable to the use of the Website, regulatory status of the funds, applicable regulatory protection, associated risks and suitability of the funds to your objectives.
Any decisions made based on the information contained in the Website are the sole responsibility of yours. Any investments made or to be made shall be with your independent analyses based on your financial situation and objectives. The investments and strategies contained in the Website may not be suitable for all investors and are not guaranteed by Robeco.
Investment involves risks and may lose value. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance. The Website may contain projections or other forward looking statements regarding future events or future financial performance of countries, markets or companies and such projection or forecast is not indicative of the future. The information contained in the Website, including any data, projections and underlying assumptions are based upon certain assumptions, management forecasts and analysis of information available on an “as is” basis and without warranties of any kind, whether express or implied, and reflects prevailing conditions and Robeco’s views as of the date published or indicated, and maybe superseded by subsequent events or for other reasons. The information contained in the Website are accordingly subject to change at any time without notice and Robeco are under no obligation to notify you of any of these changes. Robeco expressly disclaims all liability for errors and omissions in the information presented in the Website and for the use or interpretation by others of information contained in the Website.
Robeco Singapore Private Limited holds a capital markets services licence for fund management issued by the MAS and is subject to certain clientele restrictions under such licence. An investment will involve a high degree of risk, and you should consider carefully whether an investment is suitable for you.