Sustainable finance and alignment with the EU Taxonomy
The 2015 Paris Agreement set out the global commitment to act on climate change and transition to a low-carbon economy. Critical to this was developing a common language for investors, regulators, and other stakeholders of understanding whether an economic activity is environmentally sustainable. Sustainable finance taxonomies, which codify this common language, have now been launched or in various stages of development in more than 30 jurisdictions worldwide.1 Even jurisdictions that lack a local taxonomy are being influenced by those in place as investors bring their expectations and requirements to assets they own or invest in wherever they are in the world.
One such highly influential taxonomy is the EU’s Sustainable Finance Taxonomy. This science-based taxonomy is framed around six environmental objectives. It forms part of the European Green Deal which aims to transform the European Union and the wider European economy into a sustainable and climate-neutral society by 2050. Large companies, banks and insurance companies operating in the EU, as well as companies with securities listed on EU regulated markets (with exception of listed micro-enterprises) need to demonstrate that their economic activities make a substantial contribution towards achieving one of the six objectives, whilst doing no significant harm to the other five. This is achieved by complying with technical screening criteria and minimum safeguards.
BREEAM provides a comprehensive assessment of the sustainability of buildings. BREEAM addresses issues that span across all six of the EU Taxonomy’s environmental objectives and beyond. The majority of technical screening criteria for construction and real estate activities in the EU Taxonomy are embedded in BREEAM Version 7. A BREEAM assessment can show the level of an asset’s alignment with technical screening criteria, providing companies and stakeholders in financial markets with assurance of the extent to which the asset meets the requirements of EU Taxonomy.
Full alignment maps are available online at:
www.bre.group/a-guide-to-the-eu-taxonomy-and-breeam/mapping-details
These provide an overview of issues and criteria that must be met to show compliance with the taxonomy.
Minimum safeguards include criteria about governance of a company or entity. As BREEAM measures sustainability in buildings and not companies, minimum safeguards are not included.
The EU Taxonomy is in continuous development and is subjected to addition of new activities and updates, as necessary. BREEAM’s alignment with the EU Taxonomy is based on our interpretation of the Climate Delegated Act (Commission Delegated Regulation (EU) 2021/2139 and 2023/2485) and Environmental Delegated Act (Commission Delegated Regulation (EU) 2023/2486). BREEAM will endeavour to update the alignment whenever new content is formally added to an Annex including any changes to the criteria or in the interpretation of the technical screening criteria.
As taxonomies around the world evolve, BREEAM will continue to monitor and ensure that the data captured as part of BREEAM assessments supports reporting to sustainability finance taxonomy criteria from around the world.