The European Green Deal and the EU Taxonomy

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The European Green Deal and the EU Taxonomy

The European Green Deal makes sustainable finance central to the EU's 2030 climate and energy targets. This article explains the EU Taxonomy's six environmental objectives, the delegated acts that implement it, and how Türkiye is aligning its own sustainability reporting framework.


Sustainable finance is of critical importance today in addressing climate change and environmental challenges. The European Green Deal, developed by the European Union (EU) to achieve its 2030 climate and energy targets, plays a key role in this framework. Sustainable finance ensures that investment decisions are taken with environmental, social and governance (ESG) factors in mind, with the aim of channelling capital towards sustainable economic activities.


The Core Objectives of Sustainable Finance

A central objective of sustainable finance is to direct private investment, alongside public funding, towards the transition to a climate-neutral, climate-resilient, resource-efficient and fair economy. Under the European Green Deal, the EU Taxonomy Regulation entered into force on 12 July 2020 to help deliver these objectives. The Regulation provides clear, easy-to-apply definitions for identifying and promoting sustainable economic activities.


The EU Taxonomy: Defining the Environmental Objectives

Through its list of environmentally sustainable economic activities, the EU Taxonomy helps investors understand which projects qualify as environmentally sustainable. Six environmental objectives have been defined in this context:
  1. Climate change mitigation
  2. Climate change adaptation
  3. The protection and sustainable use of water and marine resources
  4. The transition to a circular economy
  5. Pollution prevention and control
  6. The protection and restoration of biodiversity and ecosystems
To be taxonomy-aligned, an economic activity must contribute substantially to one of the objectives above while doing no significant harm to any of the others.


The Sustainable Finance Package

Adopted on 21 April 2021, the Sustainable Finance Package aims to steer investors towards more sustainable technologies. It comprises the following elements:
  • The EU Taxonomy Climate Delegated Act: established to support sustainable investment and to identify the economic activities that contribute most to the environmental objectives.
  • The Corporate Sustainability Reporting Directive (CSRD): designed to make sustainability reporting more consistent so that investors have access to reliable information.
  • Amendments to Fiduciary Duties: requiring financial firms to take sustainability into account when providing investment advice.


Implementation of the EU Taxonomy Climate Delegated Act

The first EU Taxonomy Climate Delegated Act was published on 9 December 2021 and entered into force on 1 January 2022. It sets out the activities that contribute to climate change mitigation and adaptation. In addition, the Complementary Climate Delegated Act, adopted on 15 July 2022, extends the framework to certain nuclear and gas energy activities.


The Taxonomy Environmental Delegated Act

Adopted on 27 June 2023, the Taxonomy Environmental Delegated Act introduces new criteria for economic activities that contribute to the non-climate environmental objectives. These objectives include the protection of water and marine resources, the transition to a circular economy, pollution prevention and the protection of biodiversity.


International Developments and the Situation in Türkiye

Work on sustainable finance and taxonomies is under way not only in Europe but in many countries around the world. China, Japan, France and the Netherlands, among others, are developing comparable taxonomies at national level. In Türkiye, the Public Oversight, Accounting and Auditing Standards Authority (KGK) has established the Türkiye Sustainability Reporting Standards in line with international standards and is developing reporting guidance in cooperation with the French Development Agency.


Conclusion

Sustainable finance and the EU Taxonomy play a critical role in the fight against climate change. Channelling private investment into sustainable projects is essential both for meeting environmental objectives and for preventing greenwashing. In Türkiye, the steps being taken to build a sustainable finance infrastructure, aligned with international standards, will likewise contribute to a more sustainable economic structure in the years ahead.


Sources:
  • The official page of the Ministry of Trade of the Republic of Türkiye on the EU Taxonomy Regulation
  • The European Commission's official page on the environmental objectives and the European Green Deal