The EU Platform on Sustainable Finance (the “Platform”) published its final report on a social taxonomy on Monday (28 February).
The report was expected last year but we understand that it was delayed by the extended timeline for the work being completed on the environmental taxonomy.
The report considers the types of activities that might be deemed socially sustainable and sets out a proposed structure for a social taxonomy within the current EU legislative framework on sustainable finance and sustainable governance.
The suggested structure of the social taxonomy uses some structural aspects of the environmental taxonomy such as the development of social objectives, types of substantial contributions, 'do no significant harm' (DNSH) criteria, and minimum safeguards. However, it differs from the environmental taxonomy by containing sub-objectives that specify different aspects of three social objectives:
• Decent work (including for value-chain workers);
• Adequate living standards and wellbeing for end-users; and
• Inclusive and sustainable communities and societies.
The structure draws on three stakeholder groups: workers; consumers; and communities. The related sub-objectives focus on health and safety, healthcare, housing, wages, non-discrimination, consumer health, and communities' livelihoods.
The report also considers requirements for future social criteria and indicators within this framework, as well as ideas about the next steps for developing a social taxonomy.
This report comes at a sensitive time for the EU Taxonomy given the recent heated discussions around including nuclear energy and natural gas in the environmental taxonomy (and the Platform was among those stakeholders who were critical of the decision). The task of developing the social taxonomy could prove even more difficult, especially as the Russian invasion of Ukraine sharply highlights the importance of context in defining socially sustainable/detrimental activities as well as some key questions around the status of defence-related activities.
There is demand from investors for social investment opportunities (and the report notes that private investments have a role to play in financing social welfare) but the metrics used to measure social matters are even more fragmented than those used to assess environmental impacts and so the lift involved in the development of a social taxonomy will be all the greater.
The European Commission will now analyse the report with a view to publishing its own report later this year. The Commission’s report will define what the next steps will be.
It is likely to be years before the social taxonomy is ready and, in the meantime, we expect to see many stakeholders and lobbyists contributing to the discussion.
"Social and governance aspects are... a feature, rather than the main focus, of the Taxonomy Regulation, which is currently only dedicated to environmental considerations. The taxonomy contained only limited reference to social sustainability. For this reason, the European Commission gave the Platform on Sustainable Finance the mandate to also work on extending the taxonomy to social objectives and set up a subgroup dedicated to this task. This report summarises the key initial observations and recommendations on this task."