The EU will need 180 billion euros of private investments into sustainable business in order to meet the targets of the Paris climate agreement. In order to accelerate this development, the European Parliament and Council issued the Regulation on the establishment of a framework to facilitate sustainable investment, known as the Taxonomy Regulation, in the summer of 2020.
3.6.2021
EU Taxonomy Regulation a Step Towards Achieving Sustainability Objectives
Minna Korhonen & Elias Tuomainen
Related services
What is the Taxonomy Regulation?
The regulation makes it possible to offer financial products that pursue environmentally sustainable objectives and channel private investments into sustainable activities. In practice, the regulation is an amendment of the rules of the EU’s financial system that links financing to the EU’s climate goals.
The Taxonomy Regulation applies to, for example, Member States, listed companies employing over 500 people, financial market operators and insurance companies. The regulation encourages companies to make their businesses more environmentally sustainable.
What Kinds of Economic Activity are Considered Sustainable?
The regulation has six environmental objectives:
The regulation will enter into force at the start of 2022 with respect to the climate change mitigation and adaptation objectives and on 1 January 2023 with respect to the other environmental objectives.
According to the regulation, economic activities are sustainable if they make a substantial contribution to one or more of these environmental objectives and do not significantly harm the objectives. The regulation specifies characteristics for each objective for determining when an economic activity is considered to cause significant harm to the objective. For example, an activity is considered to harm the objective of climate change mitigation if it leads to significant greenhouse gas emissions.
An economic activity also qualifies as contributing substantially to the environmental objectives if it directly enables other activities to make a substantial contribution to one or more of those objectives. In such cases, life-cycle considerations must also be taken into account.
An economic activity is considered environmentally sustainable when carried out in compliance with certain minimum safeguards. It must also comply with technical screening criteria that will be established by the Commission for each objective.
How Will the Regulation Impact Notification Obligations?
In addition to environmental objectives, the Taxonomy Regulation sets disclosure obligations on companies relating to, among other things, financial products, that are divided into three classes:
When offering environmentally sustainable investments or financial products promoting environmental characteristics, companies must disclose information on the environmental objectives to which the investment underlying the financial product contributes, as well as how and to what extent the investments underlying the financial product fund economic activities that are considered environmentally sustainable in accordance with the taxonomy. If a financial product does not fulfil the above criteria, the information disclosed on its must state that the financial product does not take the criteria for environmentally sustainable economic activities into account.
How Does the Regulation Benefit Investors
The Taxonomy Regulation unifies the definition of environmentally sustainable economic activity throughout the EU. A uniform classification enhances investor confidence and awareness of the environmental impact of financial products and addresses concerns about ‘greenwashing’. Greenwashing is the marketing of products as environmentally friendly despite the claimed environmental requirements not being met.
A uniform system also helps investors compare investment opportunities across borders.
Taxonomy and Green Financing Frameworks
In addition to disclosure obligations, the Taxonomy Regulation also sets a new type of pressure on companies to put environmentally sustainable activities directly into practice in activities that companies engage in through a green finance framework.
A green finance framework is designed to support the financing or refinancing sustainable development projects that comply with the framework. The allocation of funds and the environmental impacts of projects funded through a framework are reported annually.
Green financing frameworks and their quality must always be confirmed by an external assessment provider (such as CICERO Shades of Green).
Latest insights
Article published 16.9.2024 – Banking & Finance
Private credit – an alternative to bank financing
Article published 14.5.2024 – Banking & Finance
The Green Bond label brings predictability, but issuers may have doubts due to the stringent rules
Article published 15.12.2023 – Banking & Finance
Loan Market Association published a term sheet model for sustainability linked loans
Article published 19.5.2023 – Banking & Finance
Loan Market Association has published model provisions for sustainability-linked loans
Tero Tuomisto, Minna Korhonen & Jenny Shahnovskij
Tero Tuomisto, Lia Heasman & Valter Olkkonen
Minna Korhonen & Anna-Sofia Alahuita
Minna Korhonen & Anna-Sofia Alahuita
Latest references
S-Bank – Bond transactions totalling EUR 1.45 billion for acquisition of Svenska Handelsbanken’s operations
We have advised S-Bank Plc in four bond transactions totalling EUR 1.45 billion that provided financing for S-Bank’s acquisition of Svenska Handelsbanken AB’s Finnish private customer, asset management and investment services operations. In 2023, we advised S-Bank in supplementing their earlier bond programme and in the issuance of two new bonds. S-Bank’s first covered bond, valued at EUR 500 million, was issued in September 2023. In addition to general corporate purposes, the purpose of the issue was to finance the acquisition of Svenska Handelsbanken AB’s Finnish private customer, asset management and investment services operations. Further, a EUR 150 million senior preferred MREL eligible bond was issued in November 2023 and the purpose of the issue was to meet the minimum requirement for own funds and eligible liabilities (MREL) and to finance the bank’s activities. In 2024, we have advised S-Bank Plc in the update of a EUR 3 billion bond programme. Under the programme, S-Bank may issue senior preferred MREL eligible notes, covered bonds and additional tier 1 capital notes. In February of 2024, we advised S-Bank in its issuance of a EUR 300 million senior preferred MREL eligible bond and on the tender offer of its EUR 220 million senior preferred MREL eligible bond maturing in 2025. The tender offer required the prior permission of the Finnish Financial Stability Authority based on Commission Delegated Regulation 2023/827 on technical standards for the reduction of own funds and eligible liabilities prior authorisation. The Stability Authority granted S-Bank a permission for repurchases of the notes. Based on the permission, S-Bank replaced the notes with own funds or eligible liabilities instruments of equal or higher quality at terms that are sustainable for the income capacity of S-Bank. The final tender offer results were announced in February 2024. In April 2024, we further advised S-Bank in supplementing their base prospectus and issue of their second covered bond of EUR 500 million. The covered bond’s maturity date is 16 April 2030.
Case published 30.7.2024
Fortum – Sale of recycling and waste business
We are acting as the lead counsel to Fortum in a cross-border transaction in which Fortum is selling its recycling and waste business. The business is sold to thematic impact investing firm Summa Equity through its portfolio company NG Group. The debt-free purchase price is approximately EUR 800 million. The transaction is subject to authority approval and customary closing conditions. Fortum’s recycling and waste business to be sold comprises municipal and industrial waste management and end-to-end plastics, metals, ash, slag and hazardous waste treatment and recycling services. These businesses are located in Finland, Sweden, Denmark and Norway and currently employ approximately 900 employees.
Case published 18.7.2024
Finnish Climate Fund – Junior financing to Meriaura for the expansion of low-carbon technologies in shipping
We assisted Finnish Climate Fund in junior financing to the shipping company Meriaura for their fleet renewal programme to support the adoption of low-carbon shipping solutions. Meriaura has commissioned two bio-oil-powered hybrid cargo ships with a tonnage of 6,750 from the Royal Bodewes Shipyard in the Netherlands. The ships can achieve emissions reductions of up to 98 % compared to traditional cargo ships powered by fossil fuels. In the emission-intensive freight industry, more efficient vessels powered by renewable fuels have the potential to lead the way to emissions reductions across the sector. Meriaura is a Turku-based maritime shipping company that specialises in the sea transportation of industrial products, raw materials as well as demanding special cargo. The company’s cargo ships operate in Europe, mainly in the Baltic and North Sea. The Finnish Climate Fund is a Finnish state-owned special-assignment company. Its operations focus on combating climate change, boosting low-carbon industry and promoting digitalisation. By the end of December 2023, the Climate Fund has made 24 investment decisions totalling 178.9 million euros.
Case published 26.6.2024
Gasum – Long-term financing including an extended green loan and sustainability targets
We advised Gasum Oy in a long-term financing arrangement of a total of EUR 565 million with its current lenders. The arrangement includes term loans and revolving credit facilities. It introduced certain sustainability targets, as the margin of the sustainability-linked revolving loan facility is tied to Gasum’s own sustainability goals, which are related to volumes of renewable gas, production of sustainable biogas, and safety. In addition, a part of the term loans is utilised as a green loan to finance Gasum’s strategic investments into increased biogas production both by expanding its production at the existing plants and by constructing new large-scale plants. Nordea acted as coordinator, OP Corporate Bank as sustainability coordinator, and SEB as co-coordinator and agent of the financing arrangement.
Case published 18.6.2024