Taxonomy Regulation Agreement Between the EU Parliament and Council

10 January 2020
By Eric Olmesdahl (Associate) and Andrew Burnett (Trainee Associate)

The third of the headline regulations that will implement a key part of the EU’s Action Plan for Financing Sustainable Growth is almost complete.  The final compromise text of the proposed Regulation on the Establishment of a Framework to Facilitate Sustainable Investment (2019/0178(COD)), also known as the Taxonomy Regulation, was agreed by the Council of the EU on 17 December 2019. The Taxonomy Regulation aims to identify sustainable economic activities to help guide investors and prevent greenwashing.  It is hoped that it will further shift investor preferences to more sustainable products.  The other two headline regulations, the Disclosure Regulation and Low Carbon Benchmark Regulation, were adopted by the Council in late October this year and published in the Official Journal on 9 December.

The agreement reached on the Taxonomy Regulation will first need approval by the Environment Committee and Economic Affairs Committee, after which it will be put to a plenary vote.  

Agreement on the Regulation’s timeline, alongside a number of other points, has not been easy to come by.  There were several draft compromise proposals between Parliament and the Council before agreement was finally reached.  The main areas of disagreement over the Taxonomy were its scope, the nature of the activities to be included and the implementation deadlines. 

Broadly, it seems the final compromise has adopted the Council’s positions.  Indeed, this is true for the scope of the Regulation, which has been limited to products marketed as “environmentally sustainable” or “green,” providing for a narrower scope than the Parliament argued for.

In respect of the nature of the activities to be considered “economically sustainable investments,” there were significant disagreements between both the Council and Parliament, and, notably, within the Council itself.  The argument within the Council revolved around the previous draft’s potentially negative impact on nuclear and gas projects.  Agreement was ultimately reached by softening the Regulation’s “do no significant harm” principle – which ensures that while contributing to one environmental objective, the activity does not significantly harm any of the other goals.  Similarly, the disagreement between the Council and Parliament has been settled by allowing transitioning activities, which the Parliament argued to exclude altogether, to be ultimately subject to this “do no significant harm” principle.

Finally, the Council has successfully pushed back the already delayed implementation deadlines.  With regard to the two environmental objectives: climate change mitigation and climate change adaption, these will now come into effect in December 2021, a year after the Parliament’s proposed date. The remaining four objectives of the regulation: sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and finally, the protection and restoration of biodiversity and ecosystems, are also delayed by a year, coming into effect in December 2022.