Originally published in June 2020, the EU taxonomy for sustainable activities is a regulatory framework designed to direct financial investments towards environmentally friendly activities. It sits under Article 114 in the Treaty on the Functioning of the European Union (TFEU), which is one of two treaties forming the constitutional basis of the European Union. In the past, the taxonomy has been extremely helpful in directing financial investments towards sustainable activities like restoration of ecosystems, sustainable land use, and climate change mitigation. However, the taxonomy has plenty of gaps and needs to change to successfully fulfill its role in providing nature-based solutions. Specifically, it should have an increased focus on preserving biodiversity.
Why It Matters
Limited Sector Coverage: The EU taxonomy misses many sectors that are critical for environmental sustainability. This includes sectors like agriculture, fisheries, and forestry. In a recent publication by the Sustainable Finance Observatory, they delineate that these sectors are the ones that “require the most funding to achieve biodiversity objectives” and that they are the ones that “receive the most attention from investors and are identified as the sectors where nature-based projects have the greatest potential.”
Weak Biodiversity Protection: The taxonomy also emphasizes its efforts to mitigate climate change and adapt to its effects. While this is important and necessary, biodiversity is left on the back burner. The Sustainable Finance Observatory says that “biodiversity is currently only weakly integrated into the taxonomy framework.”
Low Use by Financial Institutions: Data from the EU taxonomy indicates that nature-focused investment funds rarely cite or report taxonomy alignment. Instead, these funds rely on alternative guidelines like the Kunming-Montreal Global Biodiversity Framework because of its consistency. On the other hand, the EU taxonomy sports inconsistencies and gaps, which need to be fixed.
Details
The Paulson Institute indicates that investment in biodiversity initiates sits mainly in croplands and protected areas. It is reasonable for high levels of investments to sit in these areas because of the importance of produce that comes from croplands. However, forests and fisheries are also crucial for environmental sustainability. Forests are the lungs of the planet. They absorb carbon dioxide and provide habitat for millions of species, playing a role in preventing soil erosion and providing timber. On the other hand, fisheries are necessary for food security and economies in coastal regions. They also contribute to ocean ecosystems, which are necessary for carbon sequestration. Despite their importance, investments in forests and fisheries remain low, highlighting a gap in financial support and recognition.
Unfortunately, biodiversity has been on a steady decline since the 1970s. It is the foundation of a healthy planet, and without it, we are prone to the already incoming impacts of climate change. Biodiversity supports food production through pollination, maintains clean water by filtering pollutants, and helps mitigate climate change by storing carbon dioxide in forests and wetlands.
Action Items for Businesses and Individuals
Increase Investment in Biodiversity-Focused Funds: Invest in funds that prioritize biodiversity and ecosystem services. As mentioned above, there are already many interested investors in the fishing and forestry industries. If the EU taxonomy changes to cover these sectors, returns will be sure to follow. Items that bring less risk include green bonds that can also help us reach environmental sustainability.
Educate Yourself and Others: Spread awareness about biodiversity loss and the importance of investing in investments that forward sustainability initiatives. There is also a need to spread awareness about the flaws of the EU taxonomy. The more people know and demand change, the more likely change is to be achieved.
Support Sustainable Food Choices: Choose locally grown food to reduce the impact of industrial agriculture. Also, people should reduce the waste of food and pollution. Through this, we can change investment from agriculture to things like fisheries and forests.
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