Major investors in Europe in one way or another have run into the resident taxonomy reporting. In the European Union, the taxonomy solution has become a popular framework that gives investors a chance to move their projects to more sustainable areas. By sustainable, we obviously mean anything environmentally friendly. The main purpose of this act was to ensure that European investors have at least some funding that is eco-friendly.
The companies can start even using an EU taxonomy reporting tool that keeps tabs on how green investors are being. All this is to keep with Europe’s environmental goals, which means that there are some problems with it. This issue also means that investors have to try harder to navigate through all of it according to Celsia. Let’s see more details and learn how the taxonomy reporting can help your business.
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The green taxonomy
The term green has become a bit of a nuisance for investors in recent years. This is because, despite the word meaning all sustainable things, it doesn’t mean that, otherwise nuclear energy would not be excluded.
This becomes increasingly confusing when some bonds incorrectly label themselves as green to attract investors. This shady practice is called greenwashing and such practices have led to a controversial EU taxonomy reporting tool. It is crucial to start working on software to simplify reporting under the EU taxonomy. By using proper tools, huge businesses can improve these aspects and make an influence.
When it comes to bonds that are considered sustainable, two types come to mind. The first of these is the green bond, which helps market itself through a pledge to give back to an eco-friendly cause. Though these are fairly simple and rather common, the green label they possess puts them in the vague category.
Sustainable-linked versions are the second and the most complex of the two. These bonds base themselves on covenants that demonstrate the company’s sustainable activities. As such, they are easy to follow up on and understand.
Because of Europe’s new direction, any false green labeling is highly monitored and discouraged. The carbon-neutral goal the continent wishes to hit in eight years needs genuine investment in green innovations. As the decade began, the European Union decided to take action by not only creating laws but a proper plan to achieve this goal.
The framework was built to ensure that certain things are a bit more distinguishable. For example, it gives authority to a select band of trusted parties to be able to tell genuine green investors from greenwashing practitioners. The genuine investors are then vetted to establish the positive impact of their participation.
The framework also makes great distinctions between companies that fall under categories such as the following:
- NFRD (non-financial reporting directive)
- EU market participants
- EU member states
This is important because the companies under the NFRD have been releasing revenue and general operation data since the year began.
To make sure that greenwashing is at a minimum, the framework has made it so that companies can be tested. There are four tests that companies have to pass to be truly sustainable. These require that a company does the following:
- Make substantial contributions to a minimum of one financial cause
- Cause minimal damage to any environmental cause
- Follow all screening forms
- Operate mindful of governance and social guides
The last of these tests is the most important as it really is the judge of your activity. The technical screening phase makes it so that companies meet certain criteria regarding the entire process’ environmental footprint. Though this path of verification can work, it does have one shady point, which we will discuss below.
The unnamed energy
The EU taxonomy framework pretty much laid out everything concerning the distinctions of what is sustainable. The tool became more popular when the issue of gas and nuclear energy was brought forth. There are a lot of issues regarding how all of Europe views these two energy sources with some countries hoping that they are accepted.
This does bring about some contention because though there is less emission with both, they do pose a great risk. As a result, the view from countries against the two sources being given provisions is vocal enough to threaten to go to court.
Companies dealing with gas as well as nuclear power plants also have their problems with the taxonomy. Most of these stem from the fact that they may have to give up too much to be accepted. Nuclear power plants in particular have to adapt to special guidelines and make several changes. Some of these include:
- The usage of accident-tolerant fuels
- Mandatory research, creation, and implementation of waste-reducing tech
- Mandatory technological upgrades for currently operating plants.
These specific demands are thought of as unfair by those running nuclear plants. This is because a lot of these proposed technologies are only getting off the ground. As such they aren’t even close to being implemented.
The hopes for eu taxonomy
In theory, EU taxonomy if done right should allow many investors to not only earn a profit but help the planet while doing it. An interesting goal of this act is to grow the sector. This is because of the trend it could set, which makes the entire sector highly lucrative and investible.
Based on how somewhat mixed the reception to EU taxonomy had been, it’s safe to say that it needs some serious work. For starters, the term green has to be clear in terms of what it means and how to properly stop greenwashing. A more serious issue is how the members of the EU are going to address the energy side of things.
Time is of the essence as there is a timeframe in which Europe intends to meet its environmental goals. Fortunately, both the council and the parliament of Europe are hard at work looking for a way forward. If the act is not rejected, the beginning of 2023 will mark its enactment.