The Taxonomy Regulation: an overview

The Taxonomy Regulation entered into force last week, paving the way for a key pillar of the EU’s Action Plan on Sustainable Finance to be implemented from March 2021. As businesses and financial market participants prepare for the implementation of the Regulation, we take a closer look at its scope and operation.

The Taxonomy Regulation seeks to provide a "common language" for sustainable finance by establishing the criteria that economic activities must fulfil to qualify as "environmentally sustainable".

These criteria will underpin new disclosure obligations which the EU Sustainable Finance Action Plan imposes on corporates and financial market participants, and will form the basis for any measures passed by EU Member States or the European Union setting out requirements for issuers or financial market participants in respect of financial products or corporate bonds that are made available as environmentally sustainable. The consistent use of these criteria is intended to allow investors to make "like-for-like" comparisons between financial products and investee companies.

Although certain operative provisions of the Regulation will not directly apply in the UK following the end of the Brexit transition period, UK businesses and financial institutions would nonetheless be well-advised to begin preparing for its implementation. The UK government has indicated that it may onshore certain elements of the Regulation which become applicable following the Brexit Transition Period and, in any case, UK-based financial market participants offering products into the EU will subject to the requirements of the Regulation in respect of such products.

You can read the full article, including a step-by-step guide and worked examples illustrating how the Regulation operates, here.