In 2019, the European Commission (EC) adopted the growth strategy the European Green Deal. The key goals of the Green Deal is zero net greenhouse gas emissions by 2050 and reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. The Green Deal also includes environmental objectives within areas such as resilience, protection of biodiversity and ecosystems, transition to a circular economy, and sustainable use of water and marine resources. To achieve sustainable growth, several policy initiatives and regulations have been put in place since, to guide and make sure there is uniformity across the union.
To further support these ambitious goals, the European Union introduced a comprehensive framework to drive sustainable investment and economic activities across its member states. One of the key components of this framework is the EU taxonomy (the Taxonomy), which can play a crucial role in guiding the transition toward a sustainable economy. The Taxonomy provides a detailed common classification system defining sustainable economic activities to ensure uniformity, facilitate sustainable investments, and support the overall objectives of the EU Green Deal. The Taxonomy is part of a broader regulatory ecosystem designed to promote sustainable finance, together with the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). CSRD (Directive 2022/2464) makes it mandatory for large and listed companies to disclose sustainability information, as of January 1, 2024. SFDR (Directive 2019/2088) requires financial market participants and financial advisers to disclose on sustainability. The aim is that these regulations together will ensure transparency through reporting obligations in corporate non-financial reporting and in relation to financial products and investments. Together, these three frameworks constitute the EU Sustainable Finance Framework and work together to direct investments toward Taxonomy-aligned activities by enabling investors to identify these activities.
However, there are implementation challenges seen across sectors, which among others have been addressed by Ernst & Young, in a survey in their 2023 Taxonomy Barometer. The survey showed that most company activities on the main European stock market were considered non-eligible. Furthermore, the survey concluded that “the 2022 disclosure requirements presented significant challenges for companies reporting taxonomy-related information, and it became apparent that further guidance is still needed to ensure a consistent approach across all sectors”. In another report by Hummel & Bauernhofer where companies and stakeholders were interviewed regarding the Taxonomy regulation, findings indicate that companies struggle mostly with qualitative challenges, setting up internal reporting systems to provide high quality reporting. In addition, several studies on the effects of the Taxonomy regulation suggest difficulties in interpretations of definitions and criteria of the regulation, resulting in insufficient reporting and confusion among companies.
Hence, there is a broad range of challenges and opportunities with the Taxonomy being applied across sectors and countries within the EU. This has been raised by the Nordic Working Group for Environment and Economy (NME), under the Nordic Council of Ministers, who has initiated this assessment of the EU taxonomy's impact on the forest and construction sector in three Nordic countries. This assessment is particularly focused on the areas of climate mitigation and protection and restoration of biodiversity. By evaluating selected sectors, the project aims to gain deeper insights into the current status of implementing the Taxonomy within the region. The findings from this evaluation will play a pivotal role in shaping future guidance and recommendations, which will be essential for strengthening the implementation of the Taxonomy regulation across sectors and member states in the coming years. The study has been carried through in 2024 by Norion Consult. The authors are Rikke Fischer-Bogason, Linda Stafsing, Elvira Borgman, Amalie Engelbrecht Hansen and Laura Schou Bagh.