As active market players, we may all observe that even though sustainability and corporate social responsibility are getting more common, many organisations still need to rethink their approach. The construction sector has great potential to help implement changes. It is time for us to start think about construction in a wider way – not only in the context of buildings, but also in the context of wider business operations.
Which investments deserve to be called sustainable?
Issues related to sustainability can be difficult to measure, therefore it has always been quite challenging to judge clearly which investments are unreservedly environmentally friendly and which do not deserve to be called so. Despite much discussion and various interpretations, there is no ‘one size fits all’ conclusion.
Why do we need legislative solutions in sustainability?
It is fair to say that what the industry needed previously was a tool that would allow us to systematise the sustainability issues for businesses. We had eco-certification systems to evaluate buildings and construction processes, the buildings themselves and the operational stages of a project. These worked fairly well and their popularity has recently increased – but what about the rest of our sector’s performance?
The scale of climate change has forced governments to accelerate ongoing changes of businesses to be more sustainable, or even force sceptics to implement them, using the stick of legislative tools.
The EU, taxonomy and calling things what they are.
The Taxonomy Regulation was adopted by the European Commission in June 2020. Member states, the EU and market participants are obligated to start complying with the new requirements from December 2021.
It is intended to be a new tool which will help plan and report the transition to an economy that is consistent with the EU’s environmental objectives. The taxonomy disclosure obligations encourage the reporting of progress towards meeting screening criteria as well as reporting on their achievements (according to the final report of the technical expert group).
One of the main goals of the taxonomy regulation is to create a secured environment for investors, and to protect them from being taken in by so-called greenwashing. It will give us – as market participants and as consumers – a mutual, clear understanding of what actually is a sustainable business; it will keep us safe from being exposed to spurious information on ‘environmental friendliness’, and as a result, our social and business awareness will develop.
As there are organisations at different stages of green transition, the taxonomy regulation provides them with help to plan vital processes. Additionally, cross-border investments will be easier to carry out with mitigated market fragmentation, as the result of creating a unified classification system.
All of this means that the assumptions made by the new regulation aims to ensure a solid basis to direct capital flows towards genuinely sustainable investments.
Graphic of own design basing on the source: https://ec.europa.eu/info/sites/default/files/business_economy_euro/accounting_and_taxes/
What are the advantages of implementing EU taxonomy for companies?
This will help companies to drive their sustainability principles and purpose forward. Taxonomy regulations will enable us to recognise truly sustainable entities from among others internationally, as one set of standards will relate to all the member states. Through prioritising the criteria set by the regulations, businesses will increase their appeal among investors.
Are there any risks of implementing EU taxonomy?
Taxonomy may be associated with certain risks, which can be mitigated or managed.
Over time, as we conduct more and more research, gain more and more experience, the current set of standards may quickly become obsolete and require redefinition. We therefore need to be aware of this, keep a close eye on the market and remain flexible while developing our adaptability.
On the one hand, flexibility is necessary, on the other hand, it may cause some instability or uncertainty among the entities it concerns. In addition, limiting flexibility to a minimum can lead to rules that are too rigid and difficult to fulfil, resulting in a slowdown or even a temporary blockage.
Additionally, the taxonomy is methodically based on the EU system of business categorisation (NACE), which differs from the way investment sectors and industry segments are typically defined; this might cause communication problems.
The implementation of the taxonomy regulation requires all participants to have good motivation and a willingness to compromise, but throughout this process it is important to remember what our goal is and how high would be the risk to be taken if we gave up or failed reducing the human destructive impact on the earth.