EU ESG taxonomy - Commission continues to take the nuclear option

Despite the unease of several Member States and in the face of the critical response that its draft Complementary Delegated Act (CDA) received from the Platform for Sustainable Finance (PSF) - see our article here - the European Commission has nevertheless pressed on with its plan to include natural gas and nuclear activities under the EU's ESG taxonomy.

On 2 February 2022, it approved a proposal for the CDA along with Annexes 1, 2 and 3. Formal adoption of the measure will follow when translations have been prepared in all official languages of the EU.

What does the draft CDA do?

The draft CDA sets out the conditions under which natural gas and nuclear energy activities can be included in the list of economic activities covered by the Taxonomy Regulation and will amend

• the Delegated Regulation, published on 9 December 2021 (the Climate Delegated Act) - see our summary of the Climate Delegated Act here

• and the Commission Delegated Regulation, published on 10 December 2021, (the Article 8 Delegated Act), which requires companies to include activities in their non-financial statements or consolidated non-financial statements information on how and to what extent their activities are associated with taxonomy-aligned economic activities. See our summary of the Article 8 Delegated Act here

Under the draft CDA, to be included as an economic activity under the Taxonomy, natural gas and nuclear activities must contribute to the transition to climate neutrality. In addition,

• a nuclear activity must fulfil nuclear and environmental safety requirements, while

• a natural gas activity must contribute to the transition from coal to renewables

What has the Commission said about criticism of its earlier draft?

The Commission had to consult the PSF and the Member States Expert Group on Sustainable Finance on its initial draft of the CDA. As noted above, the PSF was publicly critical of the contents, saying that, in its opinion, the proposals were not in line with the Taxonomy Regulation.

The Commission, however,

'rejects this criticism insofar as it seems to be based on the assumption, which is contrary to the purpose of Article 10(2) of the Taxonomy Regulation, that only the technical screening criteria that ensure the most substantial contribution to the climate change mitigation objective and do no harm, or the least harm to the other environmental objectives could be included in the Delegated Act'.

The Commission also rejects criticism expressed by some Member States, which contested the inclusion of nuclear energy activities under Article 10(2) of the Taxonomy Regulation.

This may lead to some interesting arguments as the draft CDA makes its way through the legislative process. 

What happens next?

Once adopted the draft CDA will be passed to the European Parliament and the Council of the EU to scrutinise. Unless either body seeks amendments during the four month scrutiny period, the CDA will then be published in the OJ and its provisions would apply from 1 January 2023.