Posted on 13 June 2023

The package encompasses several documents: a new legislative proposal on ESG (1) rating agencies, a recommendation on transition finance, and a staff working document on the Taxonomy usability. Furthermore, it includes the final Delegated Act on Taxonomy criteria, known as the Environmental Taxonomy, which plays a crucial role in classifying activities as sustainable based on their impacts on climate, biodiversity, marine and freshwater ecosystems, pollution, and the circular economy.

"WWF welcomes the Commission's sustainable finance package, which sends a clear signal that sustainability cannot wait," said Sebastien Godinot, Senior Economist at the WWF European Policy Office. "With its recommendation on transition finance, the Commission has rightly backed the idea that corporate targets and transition plans should be used together with the Taxonomy to clarify what ‘transition finance’ is. For that purpose, we should extend the Taxonomy to green, amber and red categories as the Platform on sustainable finance recommended.” (2) 

A highlight of this package is the introduction of the final Delegated Act on Taxonomy criteria, which, for the first time, places explicit emphasis on the six environmental objectives of the Taxonomy. A joint analysis conducted by civil society organizations examined the draft Delegated Act published for public consultation in May and pointed out ten key areas of concern.

"WWF is pleased with the Commission's decision to exclude biodiversity offsetting from the Taxonomy criteria for biodiversity conservation and restoration activities," added Sebastien Godinot. However, the proposal on ESG ratings falls short of tackling the pressing issue of reliability within the ESG rating landscape. The Parliament and the Council must address this gap and ensure the credibility and trustworthiness of ESG ratings."

Moreover, the communication on transition finance makes a vital link between the EU taxonomy at the activity level, and environmental targets and transition plans at the corporate level. It aims to clarify the concept of transition finance and mitigate the risk of "transition-washing". 

Furthermore, the legislation on ESG rating agencies focuses on authorisation, organisational requirements, and disclosures. Although commendable, the current proposal falls short of fully addressing the Commission's own objective of improving the reliability, comparability, and transparency of ESG ratings. Notably, crucial aspects such as whether ESG ratings address impact materiality or financial materiality (3) and the establishment of minimum sustainability requirements for ESG ratings remain unaddressed.

Notes: 

(1) Environmental, social, and governance (ESG).

(2) The Platform’s proposal is to design a 'traffic light' framework with three categories - environmentally sustainable activities (green) / intermediate activities (amber) / harmful activities (red) - and separately, low environmental impact activities. This framework clarifies two different types of transitions: towards green / towards amber in a temporary way. It would build on the two existing sets of criteria under the green taxonomy (substantial contribution criteria and Do No Significant Harm criteria).

(3) The financial materiality focuses on sustainability-related financial risks for the company itself. The impact materiality focuses on sustainability impacts created by the company on the environment and society.