The sustainability of economic activities and projects: the importance of speaking a European language

(by Paola Bazzoni, Senior Project Manager & Developer responsible of GDA revisori indipendenti funded projects division and Beniamino Brunati – European policy expert)

After the launch of the Green Deal and the new EU targets  for the reduction of gas emissions, environmental sustainability has become a fundamental criterion for the financing of a business venture and/or a project.

For the Commission it is essential to direct investments towards sustainable projects and activities. The current COVID-19 pandemic has reinforced the need to redirect money to sustainable projects in order to make our economies, businesses and societies, especially health systems, more resilient to climate and environmental shocks.

To achieve this, we need a common language and a clear definition of what is “sustainable”. That is why the Action Plan on Financing Sustainable Growth envisaged the creation of a common classification system for sustainable economic activities, or an ‘EU taxonomy’.

The EU taxonomy aims to provide companies, investors and policy makers with appropriate definitions for which economic activities can be considered environmentally sustainable. In this way, it should create security for investors, protect private investors from greenwashing, help companies become more climate-friendly, mitigate market fragmentation, and help move investments to where they are most needed.

The Commission therefore clarifies the applicants’ doubts with the newly created ‘EU taxonomy‘, a classification system that attributes the relevant elements to each type of economic activity to ensure its environmental sustainability.

Regulation 852/2020 establishes a framework that favors sustainable investments.

To be considered sustainable, an activity must meet 4 conditions:

1. Contribute to one or more of the 6 environmental objectives:

– Climate change mitigation
– Adaptation to climate change
– Sustainable use of water and marine resources
– Transition to the circular economy
– Pollution prevention and control
– Protection and restoration of ecosystems and biodiversity

2. Do not harm any of the 6 objectives listed above.

3. Respect the minimum safeguards established by the OECD and the United Nations for businesses (on human rights and in particular rights at work).

4. Comply with criteria established by the European Commission for mitigation or adaptation to climate change, in the various sectors.

The criteria are divided by sectors and listed in a delegated act of the Commission, but for an easier application it is possible to consult the EU Taxonomy Compass, a tool that provides a more intuitive representation of the contents of the taxonomy and the criteria to be followed to ensure the sustainability of their economic activities: using an excel sheet it is possible to carry out a self-assessment of the activities, and therefore to establish objectives, actions to achieve and improve the environmental sustainability of activities and projects.

The Commission established the Technical Expert Group (TEG) on sustainable finance in 2018, which published a technical report containing recommendations on the 4 basic conditions, as well as a guide on how to use the taxonomy.

In drafting a project for a European call, it is therefore important to refer to the EU Taxonomy, to evaluate, define the sustainability of the project actions, and communicate them correctly to the Commission’s evaluators, and therefore increase the chances of success of the project, and of the request for financing.