What is EU Taxonomy and how is it linked to CSRD?
The European Union (EU) Taxonomy is a classification system designed to provide uniform standards for responsible and sustainable financial investments, and thereby an initiative to end greenwashing. It is an important part of the European Green Deal, the EU’s ambitious long-term plan for a climate-neutral economy.
The EU Taxonomy clarifies which activities may or may not be called sustainable, based on their scientifically tested contribution to preventing climate change or mitigating its effects (adaptation). The list can be used by large companies and financial institutions for reporting purposes. At the same time, the European Commission also adopted a Directive that will require some 50,000 European companies to do Environmental, Social & Governance (ESG) reporting (Corporate Sustainability Reporting Directive).
Logistics service providers can use the EU Taxonomy to identify and assess the environmental impact of their own activities. The CSRD outlines what the reporting of non-financial key-figures should look like.
Why is this important?
The ambition of the EU-Taxonomy is to drive investments towards sustainability. By backing financial companies to invest in sustainable initiatives it will become harder to get loans for non-sustainable alternatives. For example: it will become easier to get a loan for an electric truck and harder to raise money for diesel trucks.
Normally you would apply for a loan at a bank with just a business plan, in the future it is more likely they ask for a sustainability plan as well, ensuring investments to be in line Paris Climate Agreement. Via this green investment rulebook the EU is hoping to achieve its goal to have a climate-neutral economy by 2050.
How do I ensure my investments to be ‘green’?
The EU Taxonomy has set out six objectives that are ‘green’ namely:
1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems
This means that your investment needs to contribute to at least one of the six environmental objectives and ‘do no significant harm’ to any of the other objectives, while respecting basic human rights and labour standards.
Beyond classifying eligible activities by their Taxonomy objective, activities can be further categorized by three types: whether they can contribute directly to a Taxonomy objective (electric trucks); only enable other activities that contribute directly (production of electric trucks); or are transitional (truck which uses HVO instead of diesel).
Activities must also meet a set of technical screening criteria before they can be considered enabling or transitional. These activities should be referred to as “eligible-to-be-enabling” or “eligible-to-be-transitional” until they have been shown to meet the criteria, the European Commission has said. “Eligible-to-be” may be removed if scientifically proven that the investment is transitional or enabling.
How can I capitalize on the EU Taxonomy?
The EU Taxonomy can be a challenge for logistics service providers, as it requires them to be transparent about their environmental impact. Especially now that Electric Vehicles (EV’s) are more and more available and this results in lower to none CO2 transport emissions.
For logistics service providers, the EU Taxonomy also provides an opportunity to differentiate themselves and demonstrate their commitment to a sustainable future. By taking steps to reduce their carbon footprint, they can demonstrate their commitment to the green transition, strengthening their competitive position, and raise investment to make their business futureproof.
Example
To explain, this example will give some clarity as in how to implement these new rules. All companies mentioned below have five old diesel trucks that they need/want to replace.
Company A reorganizes its logistics flows so that it can replace the trucks with smaller electric buses that can handle all last mile delivery. This means they need more buses, but they all run on electricity and thus renewable energy. This investment is in line with the EU Taxonomy and is classified as “Eligible-to-enabling,” making financing relatively easy.
Company B will purchase new trucks that run on HVO diesel, making them cleaner than the trucks being replaced. This will probably be seen as “Eligible-to-be-transitional” and financing will be fairly easy to find. Since there are more and more options that emit less CO2 (such as hydrogen or electricity), this option will become more difficult to finance in time.
Company C wants new trucks that still run on diesel but are more fuel-efficient than the current ones. Company C will probably argue this as “Eligible-to-be-transitional,” as modern diesel engines are cleaner than old ones thanks to an improved engine. This argument will be hard to defend. Company C will probably have a difficult time finding financial support for this investment.
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