Scheduled review of the EU Sustainability Taxonomy

The European Union’s Sustainability Taxonomy (EU Taxonomy) for the two climate goals is undergoing a scheduled review as of January 8, 2025. EU Platform on Sustainable Finance after a 4-year period of delegated regulation establishing technical eligibility criteria for climate change mitigation and adaptation.

What the proposals for change are about

The main proposals to modify the so-called Climate Delegeted Act concern:

• Changes to technical qualification and “do not cause significant harm” (DNSH) criteria and usability improvements;
• thresholds for the energy sector;
• Harmonization of titles and descriptions of activities between annexes for the goal of mitigation and adaptation to climate change;
• Proposals for new activities and criteria of the Taxonomy for the mining and metallurgical sectors.

Consultation on the proposed changes will last until February 5, 2025. Comments can be submitted via a form. Importantly, the stakeholder dialogue is an initiative of the Sustainable Finance Platform and does not constitute a public consultation, which the European Commission is obliged to do.

Basis for determining sustainability

The review of the Climate Delegated Act as part of the work of the Sustainable Finance Platform is just the beginning of a 4-year review of the EU Taxonomy – a kind of dictionary of sustainability in the European Union. Sustainable, according to the stipulations, we can call those activities undertaken on European soil that meet both technical qualification criteria and the DNSH principle, as well as minimum social guarantees. A number of additional guidelines and explanations have already been written to clarify exactly how the above terms should be understood, such as the recently prepared Guide for Businesses on the Application of the Minimum Guarantees of the EU Taxonomy by the Ministry of Development and Technology.

EU water taxonomy

The revision of the next 4 of the 6 objectives of the EU Taxonomy, which includes water, is postponed in relation to the climate objectives. This is due to the delay in the development of the delegated act for the environmental goals. We waited for the list of activities eligible for the Taxonomy until November 2023. That’s when a regulation was published on the conditions under which an economic activity qualifies as making a significant contribution to:

• Sustainable use and protection of water and marine resources;
• The transition to a closed-loop economy;
• Pollution prevention and control;
• Protection and restoration of biodiversity and ecosystems.

This means that the 4-year period before the review would last until 2027. However, it is not excluded that the EC will decide on earlier changes to this act. It is possible that this will be related to the OMNIBUS initiative – an attempt to reduce the bureaucratic burden imposed on businesses. A number of players, including, for example, the European Investment Bank and the German Federal Government, are calling for a review of the EU Taxonomy, including reporting requirements in particular.

A second reason for the review may be the need to more quickly add activities to sectors and types of activities so far omitted from the EU Taxonomy, such as agriculture. However, this is a less likely scenario, as it involves long, difficult and extremely political negotiations. These talks at the EU level were so complicated that the EC decided to issue a delegated act for the 4 environmental goals in a truncated version, so as not to block other sectors already agreed upon.

The negotiation and clash of interests of different parties can be seen very well in the activities eligible for the Taxonomy for Sustainable Use and Conservation of Water and Marine Resources. Only 6 types of activities are included in the document:

1. manufacturing, installation and services related to leakage reduction technologies resulting in reduced water losses in water supply systems;
2. water supply;
3. municipal wastewater treatment;
4. sustainable urban drainage systems (SuDS);
5. Natural solutions for flood and drought protection;
6. Providing IT solutions to reduce water losses.

It is safe to say that these are measures to improve water quantity and quality. In addition, they are rather uncontroversial due to the requirements of other EU regulations, such as the Wastewater Directive.

Environmentally damaging activities vs. sustainable development

The logic of selecting sustainable activities for a water-related environmental goal is quite different from that for climate goals. To mitigate the effects of climate change, the types of activities included in the EU Taxonomy include both sectors that have an unquestionably positive impact on reducing emissions (RES, zero-carbon transportation) and those whose carbon footprint is very high (construction, cement production). Technical requirements related to the carbon footprint, among other things, were indicated for the high emitting sectors. This approach was intended to set standards for activities that harm the climate but are necessary for economic development. Technical qualification criteria for steel production – an element necessary for the energy transition, among other things – were defined as emissions standards per ton of product. For example:

• Liquid metal = 1.33 tons of carbon dioxide equivalent/ton of product;
• Sintered ore = 0.163 t of carbon dioxide equivalent/ton of product;
• Cast iron = 0.299 t carbon dioxide equivalent/ton of product;
• High-alloy steel from an arc furnace = 0.266 tons of carbon dioxide equivalent/ton of product.

In this way, the EU Taxonomy, on the one hand, indicates requirements for pro-climate activities, reducing the risk of greenwashing, and on the other, sets standards for sectors that particularly contribute to greenhouse gas emissions without excluding them from being considered sustainable.

For the water-related goal, unfortunately, this second component is missing – an indication of direction and standards for activities that are particularly damaging to water and marine resources. Examples of this are the criteria for textile production regarding water efficiency, for example, or for the IT industry regarding closed-loop. Such an extension of the EU Taxonomy to further industries is extremely necessary from the perspective of motivating the financial sector to actively support them. For banks and investment funds, the EU Taxonomy provides a basis for what (and formally a disclosure requirement) can be considered sustainable. It is an EU-wide guideline, suggesting what should be financed because it is sustainable and potentially less risky.

How you can help

Improving access, quantity and quality of water will not happen when we consider the water and sanitation sector and nature-based activities to be sustainable. This is far too narrow an approach. Therefore, as soon as the opportunity to revise the EU Taxonomy for the Sustainable Use and Protection of Water and Marine Resources objective opens up, I will actively engage in the work of completing the list of activities. I encourage everyone who has an eye on improving water resources to do the same.