From science to action: DUFAS calls for evidence-based criteria in the EU Taxonomy to drive green investment strategies.

In May 2023, the Dutch Fund and Asset Management Association (DUFAS) responded to the European Commission's consultation on the EU Taxonomy Delegated Acts. The EU Taxonomy is a classification system for environmentally sustainable economic activities designed to provide an objective basis for sustainable investments.

While authors Randy Pattiselanno, manager strategy and regulatory affairs at DUFAS, and Stephen Ivan aan den Toorn, policy advisor sustainability at DUFAS, specify that their organisation’s position is that the EU Taxonomy is an essential tool for asset managers seeking to invest in sustainable activities, they identify several challenges within the Sustainable Finance Framework that could be addressed by implementing a science-based taxonomy.

Science-based criteria
DUFAS stresses in its responses the need for science-based criteria to include new activities and technical screen criteria because a “large-scale transition” across many sectors and economic activities are required to create a green and sustainable economy.

Consequently, DUFAS is urging that the EU Taxonomy is based on objective criteria to prevent the inclusion of “controversial” activities that may not be environmentally sustainable.

Relatedly, it delineates the importance of distinguishing between intrinsically green activities and activities focusing on reducing negative impacts within the EU Taxonomy.

While both types of activities are essential, according to DUFAS, it notes that distinguishing between them further clarifies and substantiates the inclusion of different activities.

It also said this could be achieved by using the categories of enabling and transitional activities for activities that focus on reducing “negative impacts”.

Agriculture

Another critical point raised by DUFAS is the absence of agriculture as an economic activity in the EU Taxonomy.

The organisation notes that activities related to protecting and restoring biodiversity and ecosystems are limited, with agriculture being a significant source of adverse environmental impacts.

Notwithstanding, DUFAS added agriculture also has the potential to be a “solution to multiple environmental objectives”. Therefore, the organisation is urging the inclusion of science-based criteria for agriculture to ensure the effectiveness of the EU Taxonomy.

Moving forward

The European Commission's Delegated Acts are currently subject to a two-month scrutiny period by the European Parliament and the EU Council. If no objections are raised, the Acts come into force on January 1, 2024.

However, the response of DUFAS to the European Commission's consultation on the EU Taxonomy Delegated Acts shows that the organisation will be hoping to see a science-based approach to include new activities and technical screen criteria within the Taxonomy.

By addressing these issues, DUFAS points out, the EU Taxonomy can become an even more effective tool for asset managers pursuing sustainable investments and supporting the transition to a green and sustainable economy.

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