Despite the general confusion and indecision that surrounds taxonomy as a whole, if done right, it could have some benefits. In fact, some would say that many benefits of taxonomy solutions are available and bring profit to their businesses according to Celsia. However, the aforementioned confusion around the topic distracts from that. As a result, investors are a bit hesitant to go that route.
That said, those that take a leap of faith and fall into the right situation are more than likely to see great success. This may stem from many fronts, ranging from the financial to the reputational. The truth is that you may find going down this investment route scary, but perhaps the following information will help ease your mind. Let’s check the taxonomy advantages and how you can positively influence the environment.
Table of Contents
Defining taxonomy
Those familiar with high school biology are aware of this term. It is a way in which you can classify all living organisms and make them distinct from each other. When applied to the sector of investments, it is an act that the European Union uses to ensure that investors have something sustainable in their portfolios.
A simpler way of thinking of it is as a list that provides all the necessary points and characteristics that make a green investment. In addition to being a mode of classification, it is also a sort of manual that shows all regulations regarding the matter.
The purpose of taxonomy
As the 2020s began, the threat of global warming as a result of carbon emissions was more present than ever. As a result, the European Union decided to take multiple measures to solve it. One such way was this green investment taxonomy, which took steps towards making such bonds desirable.
How it opted to do this was by not only creating the taxonomy but taking steps to make it compulsory. This is because the EU has an ultimate goal, which is to be carbon-neutral by the end of the decade.
As you can imagine, such an undertaking is the furthest thing from easy. To help the process along the way, EU members take part in councils that create delegated acts, whose purpose is to solidify agreed-upon aspects of the taxonomy. In doing so, they become law and thus become more attractive to investors in the future. One such act was passed in April last year with another still pending.
Outside of the need to become carbon-neutral, there are other marks the EU wants to hit by 2020. These goals are as follows:
- hinder the ongoing climate change
- adapt to the global climate through innovation
- promote the efficient use of water resources
- hinder and halt all pollution
- protect nature in terms of the ecosystem
Taxonomy and its impact on businesses
As we discussed earlier, how the EU intends to meet its carbon-neutral goal is to make green investments trendy. If that is the case businesses of all types and sizes that are considered green by the taxonomy immediately become attractive to investors. If your company does fall in the sustainable category you can proceed with adhering to the Taxonomy by:
Seeing if you are aligned
Your business can be thought of as aligned if it meets the criteria set in the EU taxonomy. This is seen as true if at least one of the goals is met by the business in question.
Remediation
This is taking actual steps to fix any non-efficient or unsustainable activities. This can come in the form of reducing dependence on gas or cutting back on electricity usage.
Benefits of EU taxonomy on businesses
With the intricacies of the EU taxonomy out of the way, we can move forward with more direct advantages to businesses. The following are brought about with an alignment to the act:
- Companies with affiliations to the EU taxonomy will attract investors looking for green bonds;
- Major banking institutes are going to be more likely to fund greener projects (this will make them incur low-interest rates when loans are taken);
- As the issue of climate change becomes more of global concern, those advocating for its end increase in number, meaning that companies that meet the regulations have a generally favorable reputation;
- If the green sector as a whole experiences the growth it is set to as a result of the taxonomy, there will be a lot of competition;
- As such, if your organization participates in as many green projects as it can, it gains a competitive edge.
Achieving a mandatory status
The above benefits do give incentives to both businesses and potential investors to go the green route. That, however, is heavily dependent on how widely accepted the whole taxonomy thing is. Currently, only parts of it have reached that state, with those in alignment having mandatory checkups with governing EU bodies.
One of the more major steps that have been taken comes in the form of the screening criteria. This aspect of the taxonomy ensures that companies that are in alignment are up to code. The construction industry is probably the biggest example of a sector that harms the environment a lot.
Via the taxonomy regulations, companies seeking to be in alignment have the extra impetus to keep everything in order. This has led to an increase in green innovations to better help the issue.
Final thoughts
It is fair to say that things aren’t where they need to be to meet the European goal of being carbon neutral. Other aspects of it that will need to be addressed include the complicated issues surrounding nuclear and gas energy. There is quite a bit of confusion that comes with these two when in conversation and maybe they will be properly addressed in due time.
As it stands, however, the main focus of the EU taxonomy is to spread and ultimately become the standard going forward. The hope will also be that Europe sets the example because being carbon-neutral is of global importance.
