The implications of Sustainable Finance and taxonomy for the energy industry

Highlights from the debate: Taxonomy - what impact will it have

A Debate on the Commission’s initiatives on Sustainable Finance, Taxonomy, and their potential impact on the energy sector.

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Main takeaways from the debate

EU’s Sustainable Finance Initiative will have a huge effect on the energy industry. The adoption of the Delegated Act specifying the detailed criteria for taxonomy qualification allows to start applying these criteria in decisions on investments in energy sector. ‘Green’ financial products will be limited to investing in taxonomy compliant activities. Institutional leaders are coming under pressure to finance predominantly taxonomy compliant activities. That increases demand for sufficient bankable ‘green’ projects.

Financial institutions and large EU companies will need to report the percentage of their activities that are taxonomy compliant. As many institutional investors are working also in other markets, it is important to encourage other countries to apply similar legislation. Reporting requirements should not create excessive burden .

The taxonomy is likely to have wider importance than sustainable finance. This may become starting point for other legal and regulatory activities.

Most energy activities are already covered by the Taxonomy Delegated Act. Nuclear and natural gas are for now excluded for now excluded from the scope of the taxonomy. European Commission is considering a separate proposal covering these parts of energy sector.

An assessment is ongoing on nuclear energy. Depending on the results of this assessment the Commission will decide on a way forward.

The European Commission is assessing conditions that allow natural gas to qualify as a transitional activity and to have an access to appropriate financing. Screening criteria should be based on existing requirements, wherever possible.

It is important to avoid static view of taxonomy, it should evolve as EU advances towards the net zero GHG emissions energy sector.

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Kavita Ahluwalia

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