On 25 September 2019, the Council Permanent Representatives Committee (COREPER II) endorsed the draft compromise text for the European Commission proposal on the Sustainable Finance Taxonomy. At the same time, EU Member States requested the Finnish presidency to commence trilogue negotiations with the European Parliament. The Sustainable Finance Taxonomy is considered a cornerstone of the future EU policies on sustainable finance, which was laid down in the April 2018 EU Sustainable Finance Action Plan.
The taxonomy proposal has proven to be a highly contentious issue for the EU Member States. Starting its negotiations on 20 July 2018, it has taken the Council over 15 months to reach a compromise. Among the Council amendments to the Commission proposal, the following stand out:
- The Council added a new recital in which it explicitly states that financial products not marketed as ‘environmentally sustainable’ need not apply the sustainable finance taxonomy and disclose the alignment of the financial product with the technical screening criteria. This is to clarify the interpretation the Council has on the scope of the proposed Regulation. The statement goes directly against the views of the European Parliament, which added a so-called comply-or-explain clause to the taxonomy proposal, meaning that financial market participants who do not label their financial products as environmentally sustainable investments need to either apply the sustainable finance taxonomy rules stated in the proposed Regulation or provide a reasonable explanation supported by reasonable proof, that the economic activities that would be funded by this product do not have any significant sustainability impact.
- The Council compromise includes a date of application of 31 December 2022. This is still two and a half years later than the date of application included in the Commission proposal, which was set at 01 July 2020.
The European Parliament had already adopted its report on the Sustainable Finance Taxonomy proposal in April 2019. With the Council now having adopted its negotiation mandate, trilogue negotiations are likely to start in October or November 2019. Nevertheless, this new stage in the legislative process is not necessarily an indication that the adoption of the Sustainable Finance Taxonomy Regulation is close: Parliament and Council differ greatly in view on a number of vital issues, such as its scope. It is thus likely that the co-legislators will not reach a compromise before the end of this year.