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EU Taxonomy on sustainable finance

EU taxonomy: Sustainability becomes a prerequisite for finance

It is expected that the EU taxonomy on sustainable finance will be implemented in Norwegian law during the first half of 2021.

 

The European Union recently passed new regulations on sustainable finance. As a result of the new regulations, companies in all industries are forced to be more sustainable in order to obtain financial funding. It is expected that the regulations will be implemented in Norwegian law during the first half of 2021. The implementation will be of great importance for companies operating in Norway.

As a result of the EU regulation on sustainable financing, Norwegian and European companies will experience more stringent requirements from the financial industry when it comes to documenting their actions to become sustainable.

Businesses that satisfy the requirements for sustainability will have improved access to loans and financing. In addition, they will receive better terms and conditions from the financing institutions.

The green shift is already upon us, and sustainability should therefore be on your company`s action plan.

What is the taxonomy?

To determine whether an activity is sustainable or not, the EU has developed a framework for identifying “green”, the so-called EU Taxonomy on sustainable finance. The taxonomy currently applies to seven different industries:

  1. agriculture and forestry
  2. manufacturing
  3. electricity, gas, steam and air conditioning supply
  4. water, sewerage, waste and the related remediation
  5. transport and storage
  6. information and communication technology
  7. construction and real estate

However, it is expected that, gradually, more sectors will be regulated. The taxonomy includes technical screening criteria that businesses in different industries must use to determine how sustainable their activities are. Examples of technical screening criteria for construction and real estate are:

“It is ensured that building components and materials do not contain asbestos nor substances of very high concern as identified on the basis of the “Authorisation List” of the REACH Regulation”.

and

“The new construction must not be built on arable or greenfield land of recognised high biodiversity value and land that serves as habitat of endangered”.

Reporting requirements

The taxonomy also requires companies to report and document in accordance with the technical screening criteria for their relevant sectors. This reporting obligation is expected to take effect from 31 December 2021. Reporting on sustainability will bring clarity as to whether the company is in accordance with the taxonomy, and thus considered to be a sustainable investment object.

Sustainability is of importance for the company´s future finances

Companies already operating in Norway or planning to start up business activities here, should be aware that with the implementation of the new regulations, Norwegian banks and other financial institutions will evaluate their customers in accordance with the taxonomy. Our recommendation is therefore that companies already now familiarize themselves with sector-relevant screening criteria. The European market for sustainable finance has already exploded, and the Norwegian market is following.

Start now - avoid future penalties

By mapping your company´s sustainability, and establishing reporting routines at an early stage, you will be able to follow the developments in the market, and benefit from it. It is also expected that a penal system for companies that do not meet the taxonomy requirements will be introduced. By being prepared before the requirements are implemented in Norway, such penalties could be avoided.

The taxonomy is comprehensive but will be highly relevant going forward. In order to start your preparations, an effective tool is to incorporate environmental certifications. Read more about this in our guide.

Download free guide Environmental certifications in Norway

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