On Wednesday 6 November 2019 the EU legislators held their second trilogue negotiation round on the proposal for a Regulation on the establishment of a framework to facilitate sustainable investment (hereinafter: the ‘Taxonomy proposal’). The proposed regulation will establish the conditions and the framework to create a unified classification system on what economy activities can be considered as environmentally sustainable. The Taxonomy Proposal was published by the European Commission in May 2019. The European Parliament adopted a draft report on the Taxonomy proposal in April 2019. Yet, it was not until 25 September that the Council reached a general approach. The first trilogue negotiation round was held on 23 October 2019. During the trilogue negotiations on 6 November, the European Commission, the European Parliament and the Council are understood to have discussed a number of issues concerning the scope of the Taxonomy proposal, which is a big point of contention for the Parliament and the Council.

During the second trilogue, the following issues are understood to have been discussed:

• The conceptual difference between the Parliament report and the Council general approach on the taxonomy. Where the Council has opted to follow the Commission proposal by laying down a definition of a single category of “environmentally sustainable economic activities”, the Parliament has altered this provision in order to establish a more differentiated classification, which would include a scaled approach to the ‘greenness’ of an economic activity as well as a category of activities with a significant negative environmental impact. With this approach, the European Parliament wants to avoid that sustainable investments are only a niche of the market that is overburdened by sustainable finance requirements.
• The “enabling” and “transition” activities, contained in the Council general approach, are also understood to have been discussed by the legislators. The Council had included the wording in its text following the work of the Technical Expert Group which is tasked with developing technical advice on the level 2 measures of the Sustainable Finance Taxonomy. NRFLLP understands that there was a discussion on whether to include a specific disclosure regime for these activities, as this would bring a number of activities that are not necessarily compliant but would still have serious endeavours toward climate neutrality under the sustainable finance regime.
• The Council Presidency and the Commission are understood to have voiced their concerns about the expansion of the personal scope of the Taxonomy proposal by the European Parliament. Under the Parliament report, the text of the proposal goes beyond that of the previously adopted Sustainable Finance Disclosure Regulation and regulate corporate entities. The two other institutions do not share this view as they intend the Taxonomy proposal to only cover financial products and sustainable activities. Options on addressing the conceptual difference on the scope between the Parliament and the Council are understood to be considered.

NRFLLP understands that the next political round of trilogue negotiations will be held on 20 November, during which the legislators are likely to continue their discussions on the scope of the Sustainable Finance Taxonomy. Further trilogues are planned on 27 November and 3 December 2019. The Finnish Presidency would aim to reach a final compromise by the end of 2019.