The European Commission is expected to publish an update of its sustainable finance taxonomy on Tuesday (13 June), setting the stage for a showdown with green activists over biodiversity offsetting projects meant to compensate for the environmental damage caused by human activity.
Following a public consultation in April, the EU executive is expected to propose new technical screening criteria for the taxonomy’s four remaining objectives – water, circular economy, pollution prevention, and biodiversity.
The EU’s sustainable finance taxonomy classifies economic activities along a set of six green objectives, with the principle that they should make a “substantial contribution” to at least one and harms none of them.
A first set of criteria related to energy and climate change mitigation technologies led to a high-profile clash with France and Germany over the inclusion of nuclear energy and gas, with Brussels ultimately agreeing to include both as “transitional activities” provided they meet strict criteria.
Climate think-tank E3G praised the Commission’s proposed criteria on disaster risk reduction, saying “nature-based solutions for flood and drought risk prevention” as well as new adaptation criteria for global heating “are expected to be particularly good”.
However, it also highlighted missing criteria in sectors like agriculture, fishing, chemicals and textiles as reasons for concern, saying those are “high-impact and high-risk activities” that should follow more ambitious criteria than just business-as-usual, E3G said.
Meanwhile, circular economy criteria for sectors like buildings or plastic manufacturing are seen as too weak to “be considered as contributing significantly to the climate and environmental objectives” of the European Union, E3G added.
Biodiversity offsets
But the biggest worry for environmentalists is the inclusion of offsetting schemes in the economic activities related to biodiversity protection and nature restoration.
Biodiversity offsets are nature conservation actions designed to compensate for the unavoidable impact on biodiversity caused by projects, according to the International Union for Conservation of Nature (IUCN). Typical projects involve protecting threatened forests or restoring wetlands, to achieve No Net Loss (NNL) and preferably a Net Gain (NG) of biodiversity, IUCN says.
“By definition, offsetting is a zero-sum game, so it can’t represent a substantial contribution required to enter the taxonomy,” says Sébastien Godinot, an economist at the WWF’s European Policy Office who used to sit on the Commission’s taxonomy expert group.
Moreover, Godinot says introducing biodiversity offsetting in the taxonomy would be “inconsistent” when carbon offsets were not included in previous rounds.
“This is an essential point for us,” Godinot told EURACTIV, adding: “I hope that the Commission will be sensitive to our arguments”.
The NGO’s concerns are spelt out in a document submitted by civil society groups to the European Commission as part of the public consultation process.
Offsetting, by definition, only compensates for environmental damage made elsewhere “and thus cannot represent a substantial contribution” to the EU’s environmental objectives, the NGOs argue in the document.
Consequently, “the Commission should exclude biodiversity offsets” from the EU’s green finance taxonomy, they argue, saying the proposed biodiversity offset rules are “not science-based”.
Two years ago, NGOs suspended their participation in a European Commission expert consultation group on sustainable finance in protest against what they saw as weak and “unscientific” criteria for bioenergy and forestry in the EU’s green finance taxonomy.
Campaigners also sued the European Commission over including gas and nuclear in the taxonomy’s list of climate change mitigation technologies.
