The European Commission took on a brave and important challenge when it started to develop the EU Taxonomy in 2018. The intent behind this non-prescriptive sustainable finance guide was to define the economic activities that are considered green and those that are not, thereby helping investors to make informed decisions and the EU to achieve its 2030 climate and energy targets.
Simple, right? Wrong. Instead of a straightforward classification roadmap, the path has been muddied by debate and dispute and the journey ahead appears to be anything but straightforward.
The process is currently experiencing precarious dynamics, and everyone wants to be included. Industries and Member States are disputing the proposal, fighting hard to stretch the boundaries of what constitutes green. If we were to believe the greenwashing lobbyists, almost everything is already green. Seriously, should fossil fuels be considered green? Given what latest climate science says, I think not. Frustratingly the lobbyists have succeeded in delaying the implementation of the taxonomy until summer 2022, but it’s a delay the world cannot afford, and nor should we consider watering down the criteria. The taxonomy is an important mechanism that can help companies plan their transition to a low-carbon economy, and shift their investments and activities in support of the transition.
Let’s take the agricultural and forestry sector as an example. Many agri-businesses are asking for time to adapt, and for more flexibility than the proposed criteria allow. But this is in contradiction to what the world needs right now. The sector must step up and move away from its current production-focused systems towards those that are ecologically and socially resilient, and those based on balanced ecosystems. I know it is a daunting task, but there is no time to waste if we want to ensure our growing population has access to healthy and nutritious food. Although using pesticides can help increase yields in the short-term, in the long-run it devastates our soils and destroys our biodiversity.
Future-proofing agriculture requires investing in regenerative systems, which can only take place if food prices are fair, which they are not at present. Farmers need sufficient income to invest in viable long-term sustainable practices, so the issue of fair food prices needs to be addressed, but it should not be the reason the taxonomy’s proposed criteria is watered down. It is important that all economic effects of a transition are identified, but they need to be resolved through other mechanisms. In this case, a tax could be placed on the use of pesticides and the money collect could be used to support farmers shifting to sustainable farming practices and meeting the taxonomy’s criteria.
Also worrying is the strong call to qualify the burning of trees and crops for energy as renewable energy. Burning wood, however, produces more carbon dioxide than burning fossil fuels, and trees can take decades to grow back. The taxonomy should not allow power stations that burn wood to be called green.
For the taxonomy to remain meaningful and achieve its intended purpose, it must remain science-based and respectful of planetary boundaries. Lobbyists can continue their battle, but they need to change their course of action. Instead of fighting to dilute and delay the taxonomy, economies and industries need to come together and collaborate to fight for implementing it sooner rather than later.
More than ever we desperately need a sustainable and just economy, and the EU Taxonomy is a crucial piece in the puzzle. Let it do its job.
Rosl Veltmeijer, Portfolio Manager at Triodos Investment Management