Interview with Giuseppe Spina of the Territory and Environment Area of ​​Assolombarda: the Regulation of the European Taxonomy

In the interview of 27 June, Valentina Morelli, from the Credit and Finance Area of ​​Assolombarda, explained to us what the European Taxonomy Regulation consists of, providing valuable advice to companies on how to take taxonomy into consideration in their strategic assessments.

We further explored the discussion with Giuseppe Spina, of the Territory and Environment Area of ​​Assolombarda and coordinator of the "Environmental Quality Working Group", who worked on the drafting of the first national guidelines for the application of Taxonomy in the company, presented by Assolombarda on 7 July in Milan.

Cikis: Taxonomy is today a system of classification of sustainable economic activities from an environmental point of view. To succeed in this aim, the Taxonomy establishes, first of all, what are the environmental objectives of the EU, which Valentina Morelli told us about, but it also clarifies the requirements that each economic activity must satisfy in order to be defined as sustainable from an environmental point of view. In particular, the Commission Delegated Regulation 2021/2139, which recently entered into force, defined the technical screening criteria for the achievement of the first two objectives, namely the mitigation and adaptation to climate change. What information does it provide specifically?

G: Delegated regulation 2139/2021 - the so-called "Climate Delegated Act" - contains a list (for the moment not exhaustive) of economic activities that qualify as eco-sustainable, i.e. potentially aligned with the Taxonomy.

In particular, the regulation defines the technical screening criteria that must be respected in the performance of individual economic activities to achieve the environmental objectives of the European Union.

These criteria, elaborated on the basis of the best scientific knowledge available, are declined in a granular way taking into account the specificities of each economic activity, both in relation to the requirement of substantial contribution and to the requirement not to cause significant damage to the environment (DNSH).

Cikis: The technical screening criteria for the achievement of the other four objectives set by the Taxonomy will be defined by a subsequent delegated regulation. When is it expected to be issued? Do you have advances to give us regarding the content of the deed?

G: The technical body in charge of developing the criteria for the remaining four environmental objectives, i.e. the Sustainable Finance Platform, officially published on 30 March 2022 the report containing its recommendations on further criteria to be developed.

It is now up to the European Commission to implement these recommendations through the adoption of a specific delegated act, which will subsequently have to be submitted to the scrutiny of the Parliament and the Council before entering into force and becoming operational.

The criteria in the European taxonomy for establishing compliance with the Do No Significant Harm principle

Cikis: In addition to having to make a substantial contribution to at least one of the taxonomy's environmental objectives, the Taxonomy establishes that an economic activity, in order to be considered eco-sustainable, must also comply with the principle of Do No Significant Harm” or DNSH). In this regard, are there any criteria for establishing compliance with the DNSH requirement?

G: To verify compliance with the unprecedented principle of “Do not cause significant damage”, the Taxonomy provides three orders of criteria:

• The general criteria contained in the art. 17 of the Taxonomy Regulation (horizontal to all economic activities);
• The specific technical screening criteria for each economic activity, contained in the Delegated Regulation;
• The environmental impact assessment procedures described in the appendices of the Delegated Regulation.

In addition to these criteria, at national level, there is the document published by the Ministry of Economy and Finance entitled “Operational guide for compliance with the DNSH principle” which provides further indications for the concrete verification of the DNSH in relation to 29 sectors of activities.

The importance of Assolombarda's guidelines on European taxonomy for companies

Cikis: The guidelines provide companies with indications and tools to respond to the expectations of corporate finance operators and the private investment sector. At a strategic level, what are the priority actions on which companies need to focus?

G: The most important thing for all companies to do is check their positioning against the ideal benchmark represented by the Taxonomy.

It is essential to know where to start in order to understand what changes are necessary to improve one's level of alignment.

To do this, the first step is to understand the operating logic of this new European framework, learn how to analytically break down the business activity into individual economic activities and finally verify the correspondence between one's own economic activities and those included in the Taxonomy.

The Guidelines of Assolombarda move in this sense (click here to download them) which aim to:

• make companies understand the profound changes that are affecting the economic system;
• prepare them for the demands of the financial, banking and insurance system;
• make them ready to respond effectively to the dictates of the PNRR tenders, in particular with respect to the principle of the DNSH.

Cikis: The guidelines are not limited to providing indications at a strategic level, but constitute a practical point of reference for companies that want to embark on the path towards the ecological transition. At an operational level, what are the main recommendations addressed to companies?

G: The Assolombarda guidelines invite the use of Taxonomy as a practical tool for planning the ecological transition.

Indeed, thanks to the thresholds and limit values ​​indicated by it, companies can set themselves gradual objectives in order to reach, over time, the threshold of the substantial contribution and progressively improve their environmental performance.

In the current financial context, in fact, it is essential not only to be able to describe and communicate one's degree of alignment with the Taxonomy but also to plan a real sustainability strategy to be able to intercept the new financing opportunities made available by the market.

European taxonomy and sustainability communication

Cikis: Communicating sustainability is essential to enhance the sustainability actions undertaken in the company through the sharing of clear, truthful and non-misleading information. What is the role of taxonomy in the framework of transparency tools for sustainable finance? How can companies communicate their commitment to sustainability using the taxonomy framework?

G: The Taxonomy is part of a broader European strategy, inaugurated in 2014, aimed at increasing the sustainability of companies through greater market transparency.

From this point of view, in fact, it introduces new information obligations by grafting onto two previous legal instruments, namely the "Non-Financial Reporting Directive" and the "SFDR" Regulation.

Specifically, the Taxonomy asks companies to declare the percentage of turnover, costs and investments they have in eco-sustainable economic activities and, for this purpose, provides specific indicators and tables to communicate this to the market and its stakeholders in a clear and efficient way.

The European taxonomy regulation and the textile and fashion industry

Cikis: How does the fashion sector fit into the Taxonomy?

G: The textile-clothing-fashion sector is not currently included among the 70 most polluting economic activities at European level identified by the Taxonomy.

However, the art. 1 paragraph 2 lett. c) of Regulation (EU) 2020/852 provides that all organizations subject to the Non-Financial Reporting Directive (NFRD) and, subsequently, to the new Corporate Sustainability Reporting Directive (CSRD) will have to report on the alignment of their taxonomy activity.

It follows that also the operators of the fashion industry will be called to align themselves with the relative prescriptions.

Not only. In the EU strategy for sustainable and circular textiles, published in March 2022, it is reported that: "on the basis of the work of the expert platform on sustainable finance, the Commission is examining the possibility of adopting technical screening criteria which determine, among the other, what constitutes a substantial contribution to the circular economy in the manufacture of garments under the Taxonomy Regulation for Sustainable Investment, as well as criteria related to pollution caused by the finishing of textiles.”

As already highlighted, the Assolombarda guidelines invite companies to use the Taxonomy as a practical tool for planning the ecological transition.

Companies, from all sectors and therefore also those of fashion, thanks to the technical screening criteria can begin to measure themselves and raise the bar on their environmental performance.

This translates into greater competitiveness for the company and greater reputation towards all stakeholders.

Conclusions

Assolombarda's guidelines are aimed at all companies: from those that already have to comply with the regulatory obligations connected to the taxonomy, to those that intend to start a preventive and "voluntary" adjustment process even though they are not currently the recipients of specific obligations.

The guidelines have been drawn up with the aim of providing companies with the elements useful for understanding the logic underlying the taxonomy, for correctly transposing the environmental criteria, through strategic indications and specific operational paths.

In this way, companies will be able to communicate their degree of alignment with the Taxonomy, but also to plan a sustainability strategy to seize the financing opportunities available on the market.