The EU Taxonomy and what it might mean for the loan market

In 2018 the EU Commission adopted a package of measures aimed at supporting economic growth while reducing pressures on the environment. Central to the EU’s plan is a framework to gradually create a unified classification system for what can be considered an environmentally sustainable economic activity (the Taxonomy). 

The Taxonomy, which is now in the final stages of development, applies technical screening criteria to ascertain whether an economic activity substantially contributes to one of the EU’s six environmental policy objectives while doing no significant harm to any of the other five objectives. Activities must also comply with minimum social and human rights safeguards.  

From 2021 Member States, companies within the scope of the Non-Financial Reporting Directive and Financial Market Participants pursuant to the Disclosure Regulation will require to disclose the extent to which their financial products, activities and investments are aligned with the Taxonomy criteria. The resultant increase in the availability of consistent and detailed sustainability-related information is expected to have wide-reaching consequences for the loan markets. 

The information we present in this publication is based on a webinar we delivered for the Loan Market Association, so primarily aimed at lenders and borrowers. If you are interested in understanding more about the Taxonomy from another perspective, or discussing its practical applications in the market, please contact Caroline Barr or Chinyelu Oranefo.