The “Sustainable Finance Platform” presented their final report for European social taxonomy

The sustainable finance platform is a body of experts that advises the EC about sustainable finance strategy and also develops proposals regarding taxonomy. Analogous to the EU Taxonomy Regulation covering climate protection and adapting to climate change, the sustainable finance platform presented its Proposal for European social taxonomy on February 28, 2022.

Private investment for social objectives

Environmental and social aspects have been part of the EU's sustainable finance strategy from the beginning. The EU Taxonomy Regulation was published on June 18, 2020. Under this, companies have had to report on their "climate protection" and "adapting to climate change" objectives since January 1, 2022. More EU taxonomy environmental objectives were presented on February 2, 2022 in a supplementary delegated taxonomy act.

In the expert panel’s opinion, it makes sense to develop a European social taxonomy analogous to the Taxonomy regulation covering climate change mitigation and adaptation. The aim is to create incentives to encourage private investment to make a significant contribution for the achievement of social objectives. Social taxonomy is a classification system that prepares a list of socially sustainable economic activities. Companies and financial product providers can send a signal to their customers that their business model is socially sustainable.

What are these social objectives?

When selecting social objectives, the sustainable finance platform refers to basic documents that involve the EU’s social orientation. Included here are the European Social Charter, the EU Charter of Basic Human Rights, the European Convention on Human Rights and the European Pillar of Social Rights.

Three high-level objectives have been formulated based on them:

·         decent working conditions (for supply chain workers as well)

·         decent living and welfare standards for end consumers

·         integrative and sustainable communities and societies

Included in the social taxonomy are employees, end consumers and communities. These objectives have now been subdivided so that a comprehensive catalogue of specific social investments can be prepared - rather like a reference list of social investments.

Does the proposal have a future?

The EC, the Council and the European Parliament expect the EU Taxonomy Regulation to have a strong guiding effect on private investments and to provide a considerable boost to realising the climatic targets. As with the measures for realising the climatic targets, there is a considerable need for investment in order to be able to tackle social challenges within the EU. Mobilising private investment is a tantalising approach.

Realisation: feasible

Technical implementation within the EU seems possible according to the report from the sustainable finance platform. This means that the proposal presented by the sustainable finance platform leans towards the EU Taxonomy Regulation in both approach and structure. It has been deliberately prepared to be internationally compatible by taking into account both the UN Guiding Principles on Business and Human Rights and the OECD Guidelines for Multinational Enterprises.

However, when the report was presented, the EC reacted cautiously and pointed out that the report would have to be intensively analysed before it could be accepted.