The European Union's Platform on Sustainable Finance has introduced a comprehensive report aimed at streamlining the EU Taxonomy, a classification system for sustainable activities. This initiative seeks to enhance the efficiency of sustainable finance by reducing the complexity and burden of reporting requirements. The report outlines five key recommendations designed to make taxonomy reporting more manageable for both financial and non-financial entities. By adopting these proposals, the platform anticipates a significant reduction in reporting burdens and improved interoperability with global standards. The report also highlights the importance of aligning materiality thresholds and simplifying reporting templates to focus on relevant business information.
The EU Platform on Sustainable Finance released its report on February 5, 2025, addressing critical areas that could simplify the EU Taxonomy. One of the primary focuses is refining the "Do No Significant Harm" (DNSH) assessment. The platform suggests reviewing all DNSH criteria to increase their usability for various companies. A temporary "comply or explain" approach for DNSH assessments is proposed until a thorough review is completed. Additionally, a lighter compliance process and international applicability are emphasized. By converting references to European legislation into internationally recognized standards, the platform aims to facilitate better alignment with non-EU assets.
To reduce the corporate reporting burden, the platform recommends introducing a materiality threshold for calculating key performance indicators (KPIs). This would limit reporting to only the most relevant information necessary for making informed business decisions. The operational expenditure KPI would become mandatory only for research and development costs, further streamlining the process. Enhanced alignment with existing financial reporting regulations and simplified templates are also part of this proposal, aiming to minimize unnecessary data points.
The Green Asset Ratio (GAR), which promotes green and transition lending, is another area targeted for simplification. The platform proposes excluding assets that cannot be measured against the EU Taxonomy from both the numerator and denominator. Retail exposure reporting would be simplified, focusing on substantial contributions, while allowing estimates and proxies in reporting to protect against misleading claims. Clear guidelines for using estimates are outlined, ensuring consistent application and sufficient governance.
Supporting small and medium-sized enterprises (SMEs) in accessing sustainable finance is a crucial aspect of the platform's recommendations. A simplified approach to the EU Taxonomy for listed SMEs is suggested, along with a voluntary approach for banks and investors' exposures to unlisted SMEs. While the European Commission is not formally bound by these recommendations, their adoption could significantly streamline reporting under the EU Taxonomy, thereby enhancing access to sustainable finance opportunities.
The implementation of these recommendations could lead to a more efficient and streamlined reporting process under the EU Taxonomy. By focusing on materiality, simplifying reporting structures, and supporting SMEs, the platform's proposals aim to foster a more accessible and effective framework for sustainable finance. These changes could ultimately encourage greater participation from businesses in sustainable practices, contributing to broader environmental and economic goals.