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Clunky but critical: What is a ‘politically sustainable’ taxonomy?

There is plenty of chatter around at the moment about the developing EU Taxonomy, including from us: you can read our latest blog piece on what the EU Taxonomy might mean for aviation here.

Why are we all talking about this? In a sense, anything which makes sustainability a standard factor in risk management and investment decisions must be worthwhile. But it is also worth considering the problems we might be generating for ourselves in implementing this, in hopes of mitigating these before they arise.

For example, with the UK already planning its own taxonomy for the UK market, it’s possible these systems of definitions will proliferate across regions and result in more confusion rather than progress. If an activity is considered ‘sustainable’ in Europe, but must be performed differently in the UK to be ‘sustainable’ and isn’t considered ‘sustainable’ at all in other jurisdictions, will companies and investors working across borders find compliance too difficult to pursue?

If that’s the case, much of the incentive of green investment disappears. A taxonomy would need to be global rather than regional to avoid this – and, in the words of this article, ‘politically sustainable’. Given the diverse range of economies, preferred power sources and available alternatives in the EU alone, this is a massive task.

It is also worth noting that the EU Taxonomy has now been years in the development, and there are many sectors (such as aviation) that remain without formal technical screening criteria. If investors wait to deploy their capital in approved ‘sustainable’ initiatives, we risk letting the perfect be the enemy of the good – that is, critical transition projects might be passed over while investors wait for the golden ‘green’ projects, and valuable opportunities (and time) to begin moving the dial on emissions will be lost.

After all, as this FT article notes, ‘The world has taken so long to develop adequate green financing and emissions reduction policies that it is running out of time.’

The EU has calculated that to meet its goal to become the world’s first climate-neutral bloc by 2050, it will need €1tn of sustainable investment over the next decade. This cannot come from the public sector alone. Private investors must be involved, but to do that they need to know where to put their money, and what greenwashing dodges to avoid. Enter the clunkily-titled EU taxonomy, a list of activities deemed to be environmentally sustainable. The European Commission has spent more than three years working on this classification system, prompting heated controversy throughout.

Tags

transportation, aviation, green finance

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