A European taxonomy for ‘green’ activities
January 2021
Since sustainability became one of the key priorities for the European Commission, the question of what is green and what is not has continued to dominate discussions among policy makers. This is a question the Taxonomy Regulation, adopted last year with supplementary legislation still to come, aims to answer.
What does the taxonomy cover?
The taxonomy on sustainable activities outlines the criteria that will determine whether or not an activity can be considered “green”, whilst what these criteria actually mean in practice, and the more technical elements of the taxonomy will be set out in various upcoming Delegated Acts. The taxonomy established six environmental objectives, and for an activity to be considered “green” it will have to substantially contribute to at least one of these, whilst also not hampering the achievement of any of the other criteria. Some of these criteria, such as climate change adaption and the transition to a circular economy, clearly lend themselves more to the leasing and automotive rental industries than others.
The first of the draft Delegated Acts was issued near the end of last year. It essentially sets out which activities can be deemed as “green” in line with the first two criteria of the taxonomy regulation, namely climate change mitigation (tackling the causes of climate change) and climate change adaptation (reducing the impact of climate change). The activities these delegated acts cover vary widely, covering everything from agriculture and renewable energy to the manufacture of low carbon technologies for transport.
Why does this matter for our sector?
Clearly, criteria regarding automotive emissions and other equipment standards will have an impact on lessors who include these assets in their portfolios. The leasing industry was referred to only in the context of automotive assets and real estate, therefore Leaseurope will be working to ensure that regulators are aware of the important role our industry plays in making energy efficient equipment across a wide range of sectors available to SMEs, large corporations and the public sector. On the automotive front, cars would be required to emit zero emissions by 2025 in order to be labelled “sustainable”. Leaseurope has continued to advocate for a pragmatic approach to zero emission vehicles which recognises the major infrastructural changes that will need to take place before such a shift in consumer preference can take place.
As investors increasingly regard sustainability as a key factor in their decision making, a significant impact can be expected in relation to funding, both private and especially public. In light of the major focus on sustainability in the last few years, both at EU level and indeed within individual Member States, it is highly likely that being considered “green” will have implications on EU funding eligibility and may even become a pre-requisite for being able to benefit from EU grants. The leasing and automotive rental industries have historically faced many barriers to accessing EU funding schemes, which is why it is particularly important that the major role our industry can play in enabling the green transition, and the need for this role to be explicitly recognised in the taxonomy and accompanying delegated acts, is conveyed to policy makers. This is something we are continuing to work on, with our latest response to the first Delegated Act highlighting the role our industry plays in making greener equipment and vehicles available, and the need for the broader role of our industry to be recognised.
A taxonomy in trouble?
The European Commission’s publication of the first Delegated Act has been delayed in the face of a mountain of responses to their consultation and strong opposition within the European Council and Parliament. Many fear that the proposed taxonomy would create a ‘green bubble’ on stock markets, with only a very tiny minority of listed firms being considered ‘green’ under the current proposal. There is also fierce debate around the classification of natural gas and hydrogen as ‘transition’ fuels, with Eastern European countries in particular being concerned the current proposal is not realistic and increases the cost of energy transition for those countries who still need these fuels in their energy mix. Therefore, the future of the taxonomy is currently unclear but what is clear is that substantial adjustments to the current text would be required in order to move forward.