Introduction to the EU Taxonomy on Biodiversity and Ecosystems
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REPORT ON BEHALF OF NATURSCHUTZ- BUND DEUTSCHLAND e.V. (NABU) Sustainable Finance Introduction to the EU Taxonomy on Biodiversity and Ecosystems Isabel Schrems and Holger Bär On behalf of with the support of David Bohnenberger April 2021 Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 2 of 19 Imprint Forum Ökologisch-Soziale Marktwirtschaft (FÖS) Schwedenstraße 15a 13357 Berlin Tel +49 (0) 30 76 23 991 – 30 Fax +49 (0) 30 76 23 991 – 59 www.foes.de - foes@foes.de About FÖS Forum Ökologisch-Soziale Marktwirtschaft (FÖS) has and trade unions for its expertise in fiscal instruments, been researching and disseminating information about environmental and climate policy and foremost for its the potential and benefits of environmental fiscal re- capacity to evaluate and develop policy proposals in form (EFR), the application of market-based instru- the field of EFR. Over the last years FÖS has led and ments (MBI) and the removal of environmentally harm- participated in numerous research projects and has a ful subsidies for more than twenty years. FÖS is widely proven track record in the development, analysis and recognized among policy-makers, NGOs, companies evaluation of environmental policies. Picture Credits Foto Coverpage: maxpixel.net Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 3 of 19 Introduction to the EU Taxonomy on Biodiversity and Ecosystems Table of contents 1 Scope and goals of this report .............................................................................................................. 6 2 Introduction to the EU Taxonomy....................................................................................................... 6 2.1 Overall goal of the Taxonomy ....................................................................................................................................... 6 2.2 Process and timeline......................................................................................................................................................... 7 2.3 Development of criteria................................................................................................................................................... 8 2.4 Review and strengthening of criteria over time ..................................................................................................10 2.5 How to use the Taxonomy ............................................................................................................................................10 2.5.1 Practical examples on climate mitigation ...............................................................................................10 2.5.2 Hypothetical examples related to the circular economy and biodiversity................................10 3 The Taxonomy on biodiversity and ecosystems ............................................................................... 11 3.1 Overarching goals ............................................................................................................................................................. 11 3.2 Identifying sectors with high relevance for biodiversity and ecosystems ................................................ 12 3.3 Substantial contribution to the objective of biodiversity/ ecosystems ..................................................... 13 3.4 “No significant harm” to the objective of biodiversity/ ecosystems ........................................................... 15 3.5 Activities to be excluded ............................................................................................................................................... 16 4 Conclusion and next steps ................................................................................................................... 17 5 Literature ................................................................................................................................................ 18 Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 4 of 19 Executive Summary This report is an introduction to the EU Taxonomy, are highest. We use one of them (the agriculture its relevance, primary goals and design. Its purpose is sector) as example to point out key questions re- to help environmental experts to understand the garding the development of criteria for significantly development, structure and mode of operation of distribution and DNSH. the EU Taxonomy. The EU Taxonomy is a classifica- WWF (2020) proposes that economic activities can tion system for sustainable economic activities. Its contribute substantially to the biodiversity/ecosys- overall goal is to create transparency and disclose tem objective in three ways: 1. Enhancing the preser- the impact of investments. The Taxonomy aims to vation and restoration of biodiversity and ecosys- enable the financial system to guide investment tems, 2. Reducing pressures on natural resource decisions into a more sustainable direction. consumption or threats to biodiversity and ecosys- tems or 3. Enabling other activities to reduce envi- The European Commission is currently translating ronmental pressure. This report points out examples the environmental objective of protection and resto- for economic activities in the agriculture sector fall- ration of biodiversity and ecosystems (and three ing in these categories and presents proposals made other objectives of the Taxonomy) into criteria upon by the TEG or environmental organisations for the which the sustainability of an investment is evaluated. definition of points of reference for substantial con- Therefore, it develops criteria to measure substantial tribution and DNSH criteria. contribution to the objective of biodiversity and eco- In a last step, it gives examples of activities that might systems, as well as for significant harm (“do no signif- be excluded from consideration under the Taxonomy icant harm” (DNSH) criteria). This report uses exam- as they are incompatible with the biodiversity/eco- ples from key sectors to illustrate the application of system objective. The examples and suggestions the Taxonomy and highlights tasks in the further de- presented in this report serve as a starting point for velopment of the Taxonomy. Its intention is not to the continuous engagement with the taxonomy. It make recommendations to the ongoing process does not present a list of recommended criteria. within the EU-Sustainable Finance Platform or to present in detail all issues involved in the develop- The ability of the Taxonomy to successfully guide ment of criteria, but to enable readers to follow and economic activities into a more sustainable direction engage in the ongoing development of the Taxon- is dependent on whether the criteria for being taxon- omy. omy-compliant are ambitious and science-based. Ambitious enough to lead to greater sustainability The topic of biodiversity and ecosystem protection than the status quo and yet rooted in science and and restoration is complex and depends on local con- recent authoritative scientific research. texts. Therefore, it is difficult to define a specific over- It will be a critical task for readers and the non-gov- arching goal, which guides the development of ernmental community to accompany the develop- points of references and criteria. It might make more ment of the Taxonomy and make sure that the appli- sense to define several more specific goals for differ- cation criteria, thresholds and benchmarks are actu- ent levels of biodiversity. ally in line with science, and are being regularly re- This report outlines seven key industries and sec- viewed and strengthened over time according to tors in which challenges and opportunities of protec- newest research. tion and restoration of biodiversity and ecosystem Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 5 of 19 Zusammenfassung Dieser Bericht ist eine Einführung in die EU-Taxo- sind. Anhand eines dieser Sektoren (dem Landwirt- nomie und geht auf ihre Bedeutung, ihre Hauptziele schaftssektor) wird beispielhaft auf Schlüsselfragen und ihren Aufbau ein. Er soll Umweltexpert*innen als bei der Entwicklung der Taxonomie-Kriterien hinge- Hilfestellung dienen, um ein Verständnis für die wiesen. Entwicklung, Struktur und Funktionsweise der Der WWF (2020) schlägt vor, dass wirtschaftliche EU-Taxonomie zu entwickeln. Die EU-Taxonomie Aktivitäten auf drei Arten substantiell zum Bio- ist ein Klassifizierungssystem für wirtschaftlich rele- diversitäts-/Ökosystemziel beitragen können: 1. vante Aktivitäten. Ihr übergeordnetes Ziel ist es, Durch eine aktive Förderung von Erhalt und Wieder- Transparenz zu schaffen und die Auswirkungen herstellung von Biodiversität und Ökosystemen, 2. von Investitionen offenzulegen. Die Taxonomie soll Durch eine Verringerung des Drucks auf den Ver- das Finanzsystem in die Lage versetzen, Investitions- brauch natürlicher Ressourcen oder der Bedrohung entscheidungen in eine nachhaltigere Richtung zu von Biodiversität und Ökosystemen oder 3. Durch lenken. das Ermöglichen anderer Aktivitäten zur Reduzie- rung von Umweltbelastungen. Die Europäische Kommission arbeitet momentan Beispielhaft wird darauf eingegangen wie wirtschaft- daran, das Umweltziel des Schutzes und der Wieder- liche Aktivitäten in der Landwirtschaft in diese drei herstellung von Biodiversität und Ökosystemen (und Kategorien eingeordnet werden können. Zudem drei weitere Ziele der Taxonomie) in messbare Krite- werden Vorschläge der TEG sowie von Umweltor- rien zu übersetzen, anhand derer die Nachhaltigkeit ganisationen zur Entwicklung der Taxonomie-Krite- einer Wirtschaftsaktivität bzw. Investition bewertet rien in diesen beiden Sektoren dargestellt. In einem werden kann. Dazu werden Kriterien entwickelt, die letzten Schritt werden Beispiele für Aktivitäten ge- den substanziellen Beitrag einer Wirtschaftsaktivi- nannt, die von der Taxonomie grundsätzlich als tät zum Ziel des Biodiversitätsschutzes erfassen kön- „nicht-nachhaltig“ eingestuft werden sollten, da sie nen. Zudem sind Kriterien notwendig, um einen sig- mit dem Ziel der Biodiversität/des Ökosystems un- nifikanten Schaden für das Ziel des Biodiversitäts- vereinbar sind. Die in diesem Bericht vorgestellten schutzes abzubilden ("do no significant harm" (DNSH) Beispiele und Vorschläge dienen als Ausgangspunkt Kriterien). Dieser Bericht stellt anhand von Beispie- für die weitere Auseinandersetzung mit der Taxono- len aus relevanten Sektoren die Anwendung der Ta- mie. Sie sind ausdrücklich nicht als Liste von Empfeh- xonomie dar und zeigt Potenziale für ihre Weiterent- lungen gedacht. wicklung auf. Dabei sollen weder klare Empfehlun- gen für den laufenden Prozess innerhalb der EU- Inwiefern die Taxonomie wirtschaftliche Aktivitäten Sustainable Finance Platform ausgesprochen wer- erfolgreich in eine nachhaltigere Richtung lenken den, noch auf alle Aspekte der Entwicklung von Kri- wird, hängt davon ab, ob die Kriterien für die Taxono- terien in Detail eingegangen werden. Der Bericht soll miekonformität ambitioniert und wissenschaftlich den Leser*innen vielmehr ein Grundverständnis der fundiert sind. Die Kriterien für die Einhaltung der Ta- Taxonomie ermöglichen, um sich in Zukunft in den xonomie müssen ehrgeizig genug sind, um tatsäch- weiteren Ausgestaltungsprozess einbringen zu kön- lich eine nachhaltige Entwicklung vorantreiben zu nen. können. Gleichzeitig müssen sie in der Wissen- schaft und neueren maßgeblichen wissenschaftli- Der Biodiversitäts- und Ökosystemschutz ist kom- chen Untersuchungen verwurzelt sein. plex und stark geprägt von lokalen Gegebenheiten. Es wird eine herausfordernde Aufgabe für die Leser Daher ist es schwierig, ein übergreifendes Ziel zu de- und die nichtstaatliche Gemeinschaft sein, die Ent- finieren, von welchem solche Kriterien abgeleitet wicklung der Taxonomie zu begleiten und sicherzu- werden können. Anstatt ein einziges, übergreifendes stellen, dass die Anwendungskriterien, Schwellen- Ziel definieren zu wollen, könnte es im Rahmen der werte und Benchmarks tatsächlich im Einklang mit Taxonomie daher sinnvoller sein, mehrere spezifi- der Wissenschaft stehen und im Laufe der Zeit schere Ziele für die verschiedenen Ebenen der biolo- entsprechend der neuesten Forschung regelmä- gischen Vielfalt zu definieren. ßig überprüft und verstärkt werden. Dieser Bericht skizziert sieben Industrien und Sekto- ren, in denen die Herausforderungen und Chancen für den Schutz und die Wiederherstellung der biolo- gischen Vielfalt und des Ökosystems am größten Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 6 of 19 1 Scope and goals of this report the CSR-Directive) will have to disclose the share of their Taxonomy-aligned activities. For them, the EU This report is an introduction to the EU Taxonomy, Taxonomy is improving access to capital for invest- its relevance, primary goals and design. Its purpose is ments in (more) sustainable economic activities. It to help experts from various environmental fields and helps them measure the sustainability of a particular other interested readers to understand the devel- investment and gradually increase the share of a opment, structure and mode of operation of the company’s sustainable economic activities (i.e. in line EU Taxonomy. with the Taxonomy). In order to serve these purposes, The report discusses how the environmental objec- the Taxonomy needs to define sustainable economic tive of the protection and restoration of biodiversity activities. It is very important to note that it does not and ecosystems is translated into criteria – both for a assess companies but only economic activities 3. substantial contribution to an environmental objec- Further, the Taxonomy affects financial market par- tive as well as for the assessment of the “do no signif- ticipants who are offering sustainable finance prod- icant harm” (DNSH) principle. It uses examples from ucts. It will help them to avoid investments in green- key sectors to illustrate the application of the Taxon- washing and support institutional investors (such as omy and to highlight tasks in the further develop- insurance companies or pension funds) to invest their ment of the Taxonomy. This shall enable experts to long-term capital in sustainable economic activities, take part in the political debates on the develop- thus accelerating the transition to a more sustainable ment of the Taxonomy in 2021 and in the future. economy. For private persons interested in how Its purpose is not to outline what the Taxonomy, its “their money” is invested, the Taxonomy makes it points of reference and criteria, should look like in easier to identify which banks or funds are most com- key sectors. Even attempting to do so would over- pliant with the Taxonomy. It enables them to move whelm the scope of this paper 1 . It aims at helping their capital to banks with the highest level of sustain- readers to understand the Taxonomy’s mode of op- ability (i.e. highest taxonomy compliance). In essence, eration and enable them to follow and engage in its the taxonomy can spur a “virtuous cycle” 4 toward further development. greater sustainability. Further, the EU Taxonomy could be used to define green financial products via the EU Ecolabel or EU 2 Introduction to the EU green bond standards (DIW 2020). Taxonomy In total, the EU Taxonomy has six environmental ob- jectives, which help to define sustainable economic 2.1 Overall goal of the Taxonomy activities (see Figure 1). The EU Taxonomy is a classification system for sus- tainable economic activities. Its overall goal is to create transparency and disclose the impact of in- vestments. It is part of the EU Action Plan Financing Sustainable Growth (European Commission 2018). The Taxonomy aims to enable the financial system to guide investment decisions into a more sustain- able direction and thus accelerate the transition to a circular economy in Europe and beyond 2. The EU Taxonomy will affect a number of actors di- rectly or indirectly. Companies that are already re- quired to provide non-financial information (under 1 The nearly 600 page technical annex outlining technical the IMF & World Bank the International Platform screening criteria for the substantial contribution on sustainable finance (European Commission). 3 and DNSH to the environmental objectives of cli- This is important as the gradual transition is taking place mate change mitigation and adaptation in all rele- within a company. vant sectors is an indicator for the complexity of 4 Opposed to the concept of „vicious cycle“ of competition the matter. based on lower environmental standards, the Tax- 2 While the Taxonomy’s reach is by definition European, it onomy’s transparency approach promises compet- aims to ensure the harmonization of taxonomies itive advantages for those companies, banks, etc. worldwide. To that end, the EU has initiated with that act more sustainably. Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 7 of 19 Figure 1: Six environmental objectives The Taxonomy Regulation was published on 22 June established by the Taxonomy 2020 and entered into force on 12 July 2020. The en- (Article 9 of the Regulation) vironmental objectives are translated into criteria (technical screening criteria) to evaluate the sustain- ability of an economic activity. The development of these criteria requires a lot of attention to detail. They are subsequently developed and adopted as dele- gated acts. The draft delegated act for the first two environmen- tal objectives (climate change mitigation and adap- tion) was foreseen to be published by the European Commission in December 2020 and is now, with a delay of four month foreseen to be published in April 2021, The Technical Expert Group (TEG) on Sustain- able Finance played a crucial role in this process and published recommendations for criteria for these two objectives in March 2020 (TEG 2020a). The draft delegated acts for the remaining four envi- ronmental objectives are expected to be published in December 2021. The Platform on Sustainable Fi- nance is advising the European Commission in this process. This platform is composed of a wide range of stakeholders from the private and public sector in- cluding private stakeholders from financial, non-fi- nancial and business sectors, academia, NGOs, civil society and public institutions (European Commis- Source: EU Technical Expert Group on Sustainable Finance (TEG sion 2021). 2020a) The Taxonomy is expected to go into force for the first two environmental objectives by the end of 2021, 2.2 Process and timeline and for the remaining four objectives by the end of 2022 (see Figure 2), the Taxonomy will be fully oper- The EU Taxonomy is a two-level regulation: it consists ational by 2023. of the Taxonomy regulation (level 1) and subsequent delegated acts (level 2). Figure 2 presents the time- line of the whole process. Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 8 of 19 Figure 2: The EU Taxonomy timeline * The delegated act for the first two environmental objectives was foreseen to be published by the European Commission in December 2020 and is now foreseen to be published in April 2021. Source: (NATIXIS 2020) 2.3 Development of criteria In order to evaluate an economic activity, criteria are According to the Taxonomy Regulation, an eco- necessary to assess whether it contributes substan- nomic activity is considered taxonomy-compliant if it: tially to an environmental objective and to ensure makes a substantial contribution to at least one that such an economic activity does not create signif- of six environmental objectives, icant harm to another objective at the same time. does no significant harm (DNSH) to the other environmental objectives (where relevant), Figure 4 below illustrates how environmental objec- and meets minimum safeguards, e.g. with re- tives are translated into precise criteria to assess eco- gard to social and human rights. nomic activities. First, environmental objectives are translated into Figure 3: Requirements for compliance with the overarching goals, such as the “net-zero CO2-emis- Taxonomy sions by 2050 and a 50-55% reduction by 2030” goals on EU-level for climate mitigation (cp. TEG 2020a). These serve as the basis for the development substantial of specific criteria. contribution Secondly, sectors are identified that are of particular relevance for each environmental objective. In these sectors, criteria are developed that can measure the contribution of economic activities to the overarch- do no ing goals in this particular sector. minimum significant safeguards The third step differentiates how an economic activ- harm ity contributes to the overarching objective. It distin- guishes different types of substantial contribution. For the objective of climate change mitigation, the Source: own depiction based on Article 3 of the Taxonomy Regula- tion Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 9 of 19 TEG (2020) differentiates between three types of activity can be considered compliant with the Taxon- substantial contribution: omy. Criteria can be either qualitative or quantitative. 1. “Green activities”: These activities directly Typically, they consist of three components: princi- contribute to the overarching target as they ples, metrics, and associated thresholds. An example have already very low or no greenhouse gas on climate mitigation in cement production is out- emissions. lined in (Germanwatch, E3G 2020): 2. “Greening of activities” or “transitional ac- 1. Principles: The emissions from cement pro- tivities”: These activities support the transi- duction must be minimized tion to a carbon-neutral economy as there 2. Metrics: Specific emissions of production does not exist an environmentally sustaina- (in tCO2e per ton of cement produced) ble activity yet 5. 3. Thresholds: 0,498 tCO2e per ton of cement 3. “Enabling activities”: These activities ena- produced for substantial contribution 6 ble another economic activity to contribute Whereas the threshold for substantial contribution to climate mitigation. An example is the pro- must ensure that economic activities significantly en- duction of certain product components, hance the environmental objective in question, the which improve the environmental perfor- DNSH threshold is set lower. Its purpose is to ensure mance of an activity. that economic activities, which substantially contrib- In a fourth step, points of reference are developed to ute to another environmental objective, do not do distinguish different aspects that are relevant to a significant harm to other environmental objectives type of contribution. They also serve as a basis for the (as defined by the DNSH criteria & thresholds). selection (or development) of specific criteria. Fifth, the criteria derived from the previous steps al- low answering the question whether an economic Figure 4: Development of criteria environmental objective sectors & How can economic activi- economic ties contribute to the envi- activities ronmental objective? Which economic types of activities can substantial contribute sub- contribution stantially to the environmental objective? points of reference How can this substantial contribution be measured? criteria Source: own depiction 5 Examples are activities that still produce greenhouse aligned with an internationally recognised method gases, but significantly lower than with previous for determining low carbon transition pathway or technologies and lead to a transition towards cli- (2) (…) lower than the average global emissions mate-neutrality – e.g. in cement production or car (based on emission performance standard deter- manufacturing, etc. mined by internationally recognised data) for that 6 For DNSH, the criteria are not quantitative, but qualita- economic activity (EU Technical Expert Group on tive. The technical annex stipulates that economic Sustainable Finance 2020) activities would need to be either: (1) proven to be Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 10 of 19 2.5.1 Practical examples on climate mitigation 2.4 Review and strengthening of Manufacturing of cement criteria over time A company produces cement in five plants. Two of the five cement plants emit less than 0,489 tons of CO2 on The Taxonomy shall serve as a tool to distinguish sus- average in the production of one ton of cement. There- tainable from non-sustainable economic activities. For fore, they operate below the relevant threshold value companies, it should serve as a transition tool to in- and contribute substantially to climate change miti- crease the sustainability of their operations over time. gation. This idea of continuous improvement toward greater In order to be taxonomy-compliant, these two plants sustainability underscores the need to regularly review must do no significant harm to any of the other five en- and update the Taxonomy’s criteria 7 . Criteria that are vironmental objectives. One of these plants is located connected with political goals that have a certain date in an area with a precarious water situation. Due to its (e.g. to achieve a certain threshold by a certain year) high water consumption, cement production of this can require an updating the criteria. Similarly, as over- plant is detrimental to the goal of sustainable use of wa- arching goals for environmental objectives are ter resources and thus not taxonomy-compliant, while strengthened over time, the criteria to assess economic the other plant, being located in an area with sufficient activities must be updated accordingly. There is no water supply, does not significantly harm this environ- fixed schedule for the review of criteria, but the TEG mental objective. has signalled a recommended trajectory for many of In conclusion, one of the five plants is considered a sus- the quantitative climate change mitigation criteria. tainable economic activity according to the Taxonomy. The TEG emphasised the need for the Taxonomy to be Depending on how much this plant is producing and predictable and therefore suggests to review criteria contributing to the company’s sales, this percentage of that are relevant for “transitional activities” every third the company’s sales would be taxonomy-compliant year (Platform on Sustainable Finance 2020). (BMWi 2020). 2.5 How to use the Taxonomy Production of offshore wind energy When assessing economic activities and their compli- A company produces offshore wind energy. According ance with the Taxonomy, it is key to keep in mind possi- to the Taxonomy, this economic activity is substan- ble trade-offs between different environmental objec- tially contributing to climate change mitigation. tives (for substantial contribution and DNSH). An eco- However, the production and operation of offshore nomic activity might substantially contribute to one wind energy may do significant harm to biodiversity, environmental objective, and yet causes significant especially if badly sited (NABU/BirdLife 2020). The harm to another. Such activities do not comply with the company must ensure that underwater noise emitted Taxonomy-Regulation. during the construction and operation of the wind tur- We use two sets of examples to illustrate how the Tax- bines stays within permissible limits to ensure protec- onomy helps to identify sustainable economic activi- tion of local marine biodiversity and avoid negative im- ties in practice. The first two are examples on climate pacts on ecosystems such as the bird habitat (regard- mitigation, for which criteria have already been devel- ing the biodiversity/ecosystem-goal) (Germanwatch, oped by the TEG (EU Technical Expert Group on Sus- E3G 2020). tainable Finance 2020). The latter two are hypothetical examples that illustrate possible trade-offs and how 2.5.2 Hypothetical examples related to the the Taxonomy logic would be consequently applied to circular economy and biodiversity them. The criterion of minimum safeguards is not ex- plicitly addressed in this report. The following examples are hypothetical examples in- tended to illustrate how economic activities that are substantively contributing to one environmental ob- jective may conflict with others. They illustrate why it is necessary to evaluate the substantive contribution of 7 Thus, the TEG report describes it as a dynamic, flexible tool: should be tightened later have been signalled in ad- “The Taxonomy design includes quantitative criteria vance to provide predictability to markets, while of- wherever possible so that solutions can be specified fering a clear review mechanism for the future Plat- by the market and evolve over time. Criteria which form on Sustainable Finance.” (TEG 2020a) Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 11 of 19 an economic activity as well as whether it harms other clearly (UNEP 2020). Economic activities contributing environmental objectives. significantly to resilient ecosystems and biodiversity are in many cases direct investments in climate change Greater use of materials from biomass mitigation and adaptation. One approach to advance the circular economy is the This paper aims to contribute to informing environ- wider use of biomass materials as substitutes for con- mental experts to better understand the development ventional materials that are environmentally harmful of criteria for significant contribution and DNSH for the and hard to recycle (e.g. timber in construction). Their environmental objective of ecosystems and biodiver- use could make a substantial contribution for the sity. We closer examine key questions for an example transition to a circular economy. sector from crucial relevance (agricultural sector). However, expanding the production of such materials puts stress on ecosystems such as forests or 3.1 Overarching goals croplands 8 . Therefore, this could also negatively im- The Paris Agreement formulates the overarching goals pact ecosystems and violate the do no significant on climate mitigation and is being referenced in the harm criteria regarding the protection of biodiversity Taxonomy Regulation and the development of criteria and ecosystems. for the climate objectives. For the protection of biodiversity and ecosystems An app for more clothes sharing there also exist overarching goals on a global level. Digital tools that enable us to use products collectively, Such overarching goals are the UN Convention on Bi- for a longer time or more intensively, can be important ological Diversity (CBD) expired Aichi Biodiversity Tar- components of and make a substantial contribution gets and its post-2020 framework, the EU-Biodiversity to a circular economy in line with the EU Waste Hierar- Strategy, the UN Sustainable Development Goals chy. A number of digital tools for sharing or re-selling (SDGs), especially Goal 14 and 15, or the EU Habitats already exist. In the apparel sector such digital tools are and Birds Directive. This paper categorizes some of the already established. most important goals exemplarily according to the dif- While such platforms are likely to contribute to a more ferent levels of biodiversity, reaching from the ecosys- circular use of clothes, they could also support the “fast tem level to the species level to the granular level of ge- fashion” trend and thereby cause an even higher speed netic variability. of circulation of clothes along with increased resource On the ecosystem level, which include marine ecosys- needs for packaging and transport emissions. There- tems (oceans, coastlines, mangroves and coral reefs), fore, a thorough assessment of such an app would have terrestrial ecosystems (tropical, temperate and boreal to consider both its contribution to the circular econ- forests, grasslands, heaths and bushes, ice and rock ar- omy and the fulfilment of the do no significant harm eas or human made croplands or urban ecosystems) criteria. and freshwater ecosystems (inland wetlands, peat- lands, lakes and rivers) many overarching goals focus on area protection: 3 The Taxonomy on biodiversity ,,By 2050, all of the worlds ecosystems are restored, and ecosystems resilient and adequately protected' (Overarching Resilient ecosystems and healthy biodiversity are im- Vision for 2050 in the EU Biodiversity Strategy, Eu- portant to prevent threats to society and the global ropean Commission (2020)) economic system. A recent study estimates that ,,By 2050, biodiversity is valued, conserved, re- around US$ 44 trillion of economic value generation stored and wisely used, maintaining ecosystem ser- is directly dependent on ecosystem services. This is vices, sustaining a healthy planet and delivering more than half of the world’s current total GDP (World benefits essential for all people’’ (post-2020 frame- Economic Forum/PwC 2020). work draft, CBD (2020a)) Protecting and restoring biodiversity and ecosystems “By 2030, at least 30% of the land and 30% of the contributes to climate change mitigation and adap- sea should be protected in the EU.’’ and ,,10% of EU tation. Conversely, actions to mitigate climate change land and 10% of EU sea should be strictly pro- also contribute to the stability of ecosystems. Agricul- tected‘‘ (Key Commitments of the EU Nature Res- tural systems, which are affected by climate change toration Plan in the EU Biodiversity Strategy, Euro- and therefore face losses in resilience, show these links pean Commission (2020)) 8 In the case of food crops, higher demand for material uses of biomass (material, food, feed, energy, as ecosys- could also intensify conflicts between different uses tems) (EEA 2018). Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 12 of 19 ,,Protect, restore and promote sustainable use of 2030 Milestone Plan in the post-2020 framework terrestrial ecosystems, sustainably manage forests, draft, CBD (2020a)) combat desertification, and halt and reverse land ,,By 2030, manage, and where possible control, degradation and halt biodiversity loss” (Sustainable pathways for the introduction of invasive alien spe- Development Goal 15, UNDESA (2021)) cies, achieving [50%] reduction in the rate of new ,,By 2030, [50%] of land and sea areas globally are introductions, and control or eradicate invasive al- under spatial planning addressing land/sea use ien species to eliminate or reduce their impacts, in- change, retaining most of the existing intact and cluding in at least [50%] of priority sites'' (post- wilderness areas, and allow to restore [X%] of de- 2020 Action Target 5, CBD (2020a)) graded freshwater, marine and terrestrial natural The genetic variability is the smallest level, at which bi- ecosystems and connectivity among them'' (Action odiversity occurs. Genetic variability means the dis- Target 1 of post-2020 framework draft, CBD tinctiveness of genes within a species or breed and de- (2020a)) fines the adaptability of a species to environmental ,,By 2030, protect and conserve through well con- changes and threats (NABU, BCG 2020). nected and effective system of protected areas and ,,By 2020, the genetic diversity of cultivated plants other effective area-based conservation measures and farmed and domesticated animals and of wild at least 30 percent of the planet with the focus on relatives, including other socio-economically as areas particularly important for biodiversity'' (Ac- well as culturally valuable species, is maintained, tion Target 2 of post-2020 framework draft, CBD and strategies have been developed and imple- (2020b)) mented for minimizing genetic erosion and safe- ,,By 2020, the rate of loss of all natural habitats, in- guarding their genetic diversity.'' (Aichi Biodiversity cluding forests, is at least halved and where feasible Target 13, CBD (2020b)) brought close to zero, and degradation and frag- The topic of biodiversity and ecosystem protection and mentation is significantly reduced.'' (Aichi Biodiver- restoration is complex and depends on the local con- sity Target 5, CBD (2020b)) text. In the context of biodiversity, it might make sense Biodiversity on species level devotes to the variety be- to define one broader overarching goal, from which tween plants, animals and microorganisms (NABU, several more specific goals are developed. These more BCG 2020). Some frameworks set overarching goals specific goals could represent important points of ref- which affect species level in general or set goals for erences for the evaluation of economic activities. specific species: The challenge for defining substantial contribution for ,,The overall objective of the two directives is to en- the protection of biodiversity and ecosystems lies in an sure that the species and habitat types they protect agreed ambition level for the evaluation and assess- are maintained, or restored, to a favourable conser- ment of substantial contribution. vation status throughout their natural range within the EU. It is therefore more than just halting their further decline or disappearance; the aim is to en- 3.2 Identifying sectors with high sure that the species and habitats recover suffi- relevance for biodiversity and ciently to enable them to flourish over the long- ecosystems term.'' (Birds and Habitats Directive (European Commission 2021b)) Economic activities are of high relevance for biodiver- ,,By 2020, invasive alien species and pathways are sity and ecosystems if they a) substantially contribute identified and prioritized, priority species are con- to the protection of biodiversity and ecosystems or b) trolled or eradicated, and measures are in place to have a negative impact on biodiversity and ecosystems manage pathways to prevent their introduction and and should be excluded with the DNSH-criteria. establishment.'' (Aichi Biodiversity Target 9,CBD A study by UN environmental programme et al. (2020) (2020b)) identifies five industries, which can have severe im- ,,By 2020 the extinction of known threatened spe- pacts on biodiversity and which receive a high number cies has been prevented and their conservation sta- of financial investments in comparison to other indus- tus, particularly of those most in decline, has been tries. That makes them especially relevant in the con- improved and sustained.''(Aichi Biodiversity Target text of the Taxonomy Regulation. The five key indus- 12, CBD (2020b)) tries are: ,,The number of species that are threatened is re- 1. Agriculture: IPBES (2019) identifies land use duced by [X%] and the abundance of species has change and intensive agriculture as the biggest increased on average by [X%]’’ (Goal A.2 of the drivers of biodiversity loss globally. Similarly, an Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 13 of 19 analysis by NABU & BCG (2020), finds that farm- 3.3 Substantial contribution to the ing is the economic activity with the highest share of pressure on biodiversity. It is responsible for ap- objective of biodiversity/ proximately 26% of the pressure on biodiversity. ecosystems The expansion of agriculture is the most important Article 15(1) of the Taxonomy Regulation establishes a driver of biodiversity and ecosystem decline and is framework for the definition for substantial contribu- responsible for 80% of the global deforestation. tion for the protection and contribution of biodiversity Along with unsustainable, intensive cultivation and ecosystems (see Figure 5). systems, it is responsible for the near extinction of almost 40% of global insect species (NABU, BCG Figure 5: Article 15(1) of the Taxonomy Regulation 2020). Article 15 2. Distribution: The distribution sector has a huge impact on biodiversity and ecosystems due to Substantial contribution to the protection and resto- emissions of greenhouse gases and other air pollu- ration of biodiversity and ecosystems tants (as well as water and soil pollutants) from ve- 1. An economic activity shall qualify as contributing hicles and ships, and the potential spread of inva- substantially to the protection and restoration of biodi- sive species through vehicles and ships (UNEP versity and ecosystems where that activity contributes 2020). substantially to protecting, conserving or restoring biodi- versity or to achieving the good conditions of ecosystems, 3. Mining and Extraction: Mining activities exert or to protecting ecosystems that are already in good con- high pressure on biodiversity at the local level be- dition, through: cause it causes habitat conversion and fragmenta- (a) nature and biodiversity conservation, including tion, ecosystem degradation, and soil, water, and achieving favourable conservation status of natural air pollution (NABU, BCG 2020). and semi-natural habitats and species, or preventing 4. Oil and Gas Exploration and Production: Oil and their deterioration where they already have favoura- gas exploration and production have a high impact ble conservation status, and protecting and restor- on biodiversity and ecosystems due to the use of ing terrestrial, marine and other aquatic ecosystems in order to improve their condition and enhance land, marine area and freshwater as well as pollu- their capacity to provide ecosystem services; tion (non-greenhouse gas emissions, water and soil pollutants and solid waste) and further disturb- (b) sustainable land use and management, including ances (noise and light pollution) (UNEP 2020). adequate protection of soil biodiversity, land degra- dation neutrality and the remediation of contami- 5. Oil and Gas Storage and Transportation: The in- nated sites; dustry uses terrestrial, freshwater and marine ar- eas and thus can have a huge impact on the state (c) sustainable agricultural practices, including those that contribute to enhancing biodiversity or to halt- of ecosystems and biodiversity through the spread ing or preventing the degradation of soil and other of invasive species and its greenhouse gas emis- ecosystems, deforestation and habitat loss; sions (UNEP 2020). (d) sustainable forest management, including practices Other industries, like forestry and fishery also highly af- and uses of forests and forest land that contribute to fect biodiversity and ecosystems (NABU & BCG 2020). enhancing biodiversity or to halting or preventing 6. Forestry: Biodiversity loss through forestry results degradation of ecosystems, deforestation and habi- for instance from inadequate forest management, tat loss; or particularly from the overexploitation of local eco- (e) enabling any of the activities listed in points (a) to (d) systems due to conventional logging techniques of this paragraph in accordance with Article 16. or inadequate afforestation techniques (NABU, BCG 2020). Though this framework already gives an overview of 7. Fishery: Through effects of by-catch, habit altera- which aspects are relevant for defining a substantial tion or altered energy flow, fisheries put direct contribution, it does not offer a practical definition (e.g. pressure on biodiversity (Boehlert 1996). For ex- how much, where or what type of biodiversity must be ample, fisheries change the composition of fish protected or restored for the objective to be met). This communities and their interactions, resulting in al- framework must be specified based on economic activ- terations of their genomes or changes in seabed ities in relevant industries and sectors. biodiversity (Thrush et al. 2016). Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 14 of 19 Economic activities and substantial contribution to measurable within a timescale relevant to the invest- biodiversity ment?). In the context of the biodiversity and ecosys- As already pointed out in Chapter 2, the TEG (2020b) tem goal, IEEP (2020) suggests that the impact of eco- differentiates between three different types of sub- nomic activities on biodiversity/ ecosystems should be stantial contribution to the goal of climate change mit- measurable by person(s), who implement it practically, igation (green activities, greening of activities and ena- or by a third-party certifying the results. bling activities). According to the Biodiversity Indicators Partnership Regarding the protection and contribution of biodiver- (BIP), it is important that indicators are scientifically sity and ecosystems, there are also attempts to contrib- valid, based on available data, responsive to change in ute to the discussion on different types of substantial the issue of interest and easily understandable. Widely contribution. WWF (2020) proposes that economic used metrics in biodiversity impact assessments are on activities can: a global level, for example, the “Mean Species Abun- dance” (MSA) metric and the “Potentially Disappeared 1. Enhance the preservation and restoration of bi- Fraction of Species” (PDF) metric (PBAF 2020). Many odiversity and ecosystems (especially in areas that biodiversity indicators refer mainly to species diversity matter the most for the conservation of biodiver- – but not only the status of species is important, but also sity). These activities improve the condition of eco- that of habitat types and the genetic diversity within a systems or maintain ecosystems in good condi- species. tion. It must be decided which indicators work best in the examples: public (or private) investments context of the Taxonomy. At a European level, for ex- in preservation of protected areas, the ample, there exist a wide range of data sources and in- restoration of ecosystems or the remedi- dicators, for example the SEBI indicator set, which pro- ation of infrastructure that is harmful to vides data about the abundance and distribution of Eu- biodiversity ropean species, livestock genetic diversity, the impact 2. Reduce pressures on natural resource consump- of climate change on bird populations, etc. (Biodiver- tion or threats to biodiversity and ecosystems. sity Information System for Europe). These activities reduce or maintain the pressure or To measure the impact on biodiversity, solid data on threats to a sustainable level or significantly re- the situation before and after the economic activity as duce the pressure or threats compared to a busi- well as monitoring data would be helpful. According to ness-as-usual development IEEP (2020), the data should take habitat and species examples: reforestation of buffer zones, data of the certain area as well as overall ecological re- the replacement of harmful agricultural search data into account. Another practical approach techniques (like pollution via pesticides are evidence-based criteria which dictate certain prac- or nutrient loads, heavy machinery com- tices like biodiversity crop and indicate whether or not pacting soils) by more sustainable prac- local biodiversity monitoring is in place. However, it tices needs to be seen in the discussions whether there need 3. Enable other activities to reduce the environ- to be a threshold size of operations. Experts from the mental pressure on biodiversity and ecosystems or relevant fields might add other aspects that are cur- to enhance the good status. rently missing in this report. examples: development of machinery Whether or not results will be achieved during the pe- that support agriculture to operate in a riod of the investment is important for the timescale. In more biodiversity-friendly way many cases, the investment will run shorter than the state of biodiversity/ecosystems can improve. Conse- quently, a certain threshold or improvement might not Points of reference be achieved until the end of the investment. For such The definition of points of reference derived from the cases, the evaluation of an economic activity must take overarching goal for economic activities in certain sec- into account these diverging timespans (e.g. by adapt- tors can help to clarify what criteria for substantial con- ing thresholds or using more appropriate criteria) (IEEP tribution need to ensure. 2020). Aspects for the development of criteria Example: Economic activities in the agricultural sec- According to IEEP (2020), two crucial aspects in the tor definition of criteria are: 1. the measurement (can the The global and EU frameworks presented above high- result be measured to a reasonable degree of effort light a number of areas where changes in agricultural and accuracy?) and 2. the timescale (is the result Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 15 of 19 practices can reduce the negative impacts on biodiver- legumes to regenerate the soil or the creation of wider sity and ecosystems. Especially the EU Biodiversity field margins (NABU, BCG 2020). Strategy and the Birds and Habitats Directives can help However, activities that are somehow less harmful to indicating how economic activities in the agricultural biodiversity (better than a business-as-usual scenario), sector can contribute substantially. but not fully biodiversity-friendly must not be defined On basis of these three EU frameworks and Article 15 of as substantially contribution to the protection of biodi- the Taxonomy Regulation, IEEP (2020) developed the versity and ecosystems. following points of reference (p.9): Economic activities that end the conversion of natural The population of all naturally occurring species habitats and maintain or re-establish land for wild spe- particularly bird and insect pollinators on agricul- cies can enhance the preservation or restoration of bi- tural land are maintained and enhanced. odiversity directly (first type for substantial contribu- A sufficient diversity and area (no less than [X%] of tion). Yet continued agriculture can also be a pre-con- farmed land) of habitats for wild species popula- dition to the protection of certain habitats like grass- tion is preserved, maintained or re-established, al- lands. lowing them to thrive within agricultural land. Economic activities that enable agricultural activities The genetic diversity of farmed species is increased. to contribute substantially create the preconditions for economic activities of the first and second type of sub- Soil fertility and soil organic matter is protected stantial contribution. and enhanced, and erosion reduced – achieving land degradation neutrality. But not all these activities contribute automatically to the preservation of biodiversity and ecosystems in a Invasive alien species are avoided or suitably and significant manner. The criteria must assure that these strictly contained. economic activities have a positive impact on ecosys- The use of natural resources and ecosystems for tems and biodiversity in a measurable way. agricultural activities is sustainable and within pa- rameters defined for planetary boundaries not covered by other objectives of the Taxonomy, spe- 3.4 “No significant harm” to the cifically – No additional (natural) land take for ag- objective of biodiversity/ ricultural production. ecosystems Point source and diffuse pollution from agriculture is eliminated. Whereas criteria for substantial contribution must en- However, the proposed points of reference do not sure that economic activities significantly enhance the cover all relevant aspects in the agricultural sector. For protection and restoration of biodiversity and ecosys- example, they do not consider the ecologically con- tems, DNSH criteria ensure that economic activities are nectivity of areas, which are used for farming, or reduc- not detrimental to the good condition and resilience of ing livestock density. Experts from the relevant fields ecosystems or the conservation status of habitats and might add other aspects that are currently missing in species. The DNSH criteria represent red lines for com- this report. The Platform on Sustainable Finance is cur- pliance with the taxonomy. rently discussing this issue. We do not discuss economic activities that contribute The points of reference for substantial contribution to the objective of biodiversity protection here – the fo- should be in line with existing global and EU standards cus lies on economic activities that contribute substan- on the protection of biodiversity and ecosystems. But it tially to one of the other five environmental objectives. is important that they go beyond baseline compliance They must not harm the objective of biodiversity pro- with existing legislation and assure that economic ac- tection and restoration. tivities really contribute substantially to the overall ob- jective. Example: Economic activities in the agricultural sec- tor Activities in the agricultural sector and substantial For economic activities in the agricultural sector, contribution to biodiversity DNSH criteria have been developed in the Technical The majority of agricultural activities can probably con- Annex of the Taxonomy Report (TEG 2020b, p.124- tribute substantially by reducing pressure on natural 125) (see Figure 6). resource consumption or threats to biodiversity and IEEP (2020) suggests that activities further must not ecosystems (second type for substantial contribution). lead to an increased use of natural resources and Such activities include agricultural practices that sup- ecosystems, which would go beyond planetary bound- port a greater variety of locally sourced crops and aries that are not covered by other environmental ob- seeds, the cultivation of mixed crops and intercrops like jectives in the Taxonomy. Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
Introduction to the EU Taxonomy on Biodiversity and Ecosystems • Page 16 of 19 Figure 6: DNSH criteria for the agricultural sector and excessive nutrient load and invasive alien species) developed by the TEG should be incompatible with the Taxonomy (WWF 2020). Activities ensure the protection of soils, particu- Based on the DNSH criteria, the list could also be spec- larly over winter, to prevent erosion and run-off into water courses/bodies and to maintain soil ified on certain economic activities in relevant sectors. organic matter. As example, we look again at economic activities in the Activities do not lead to the conversion, frag- agricultural sector. mentation or unsustainable intensification of high-nature-value land, wetlands, forests, or Example: Economic activities in the agricultural sec- other areas of high-biodiversity value. This in- cludes highly biodiverse grassland spanning tor more than one hectare that is: Based on NABU, BCG (2020), the following activities i. natural, namely grassland that would re- could be examples for economic activities that could main grassland in the absence of human in- appear on a “Exclusion List” regarding the objective of tervention and that maintains the natural biodiversity protection and restoration: species composition and ecological char- acteristics and processes; or ii. non-natural, namely grassland that would Intensive cultivation cease to be grassland in the absence of hu- Intensive cultivation practices (like narrow crop rota- man intervention and that is species-rich tion, large scale surface irrigation or cultivation with and not degraded and has been identified heavy machinery) put pressure on soils leading to land as being highly biodiverse by the relevant degradation (NABU, BCG 2020). competent authority. Homogenously cultivated areas with few field mar- Activities should not: gins, no sufficient space for wild species i. result in a decrease in the diversity or abun- dance of species and habitats of conserva- Intensive cultivation like narrow crop rotation, tion importance or concern; preparation with heavy machinery ii. contravene existing management plans or conservation objectives. Activities including pesticides Where activities involve the production of novel Pesticides and other chemicals enter soils, waterways non-native or invasive alien species, their cultiva- or the ocean and affect native organisms negatively or tion should be subject to an initial risk assessment and on- going monitoring in order to ensure that change nutrient balances, acidity and oxygen levels sufficient safeguards are in place to prevent es- (NABU, BCG 2020). cape to the environment. Synthetic fertilizers and pesticides Extensive use of chemical crop protection products 3.5 Activities to be excluded Intensive livestock farming Intensive livestock production requires feed which is This chapter concludes with examples of economic ac- often cultivated intensively and pressures biodiversity tivities, which might be generally excluded from an indirectly through water pollution and soil degradation evaluation in the context of the Taxonomy as they sig- on production site. If extensive livestock farming is nificantly harm the environmental objective of protec- poorly managed (e.g. inadequate grazing) it can further tion and restoration of biodiversity and ecosystems. have a direct negative impact on biodiversity (FAO Note that the presented examples do not represent a 2019). final list, but should be seen as starting points and sup- plemented by experts from relevant fields. (DIW 2020) proposes to add an “Exclusion List” for ac- tivities that are incompatible with the environmental objectives of the Taxonomy. Such a list could be valua- ble to identify easily which activities should be gener- ally not taken into account for sustainable investments. From the biodiversity and ecosystem perspective, in general economic activities that strengthen the main drivers of biodiversity loss (habitat loss and degrada- tion through land and sea use change, over-exploita- tion and unsustainable use, climate change, pollution Forum Ökologisch-Soziale Marktwirtschaft e.V. • Green Budget Germany
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