Asserting the EU’s Taxonomy Regulation effects in Malta

In an attempt to classify economic activities throughout the EU according to their level of sustainability, the EU Taxonomy Regulation lists the mitigation and adaptation of climate change, the sustainable use and protection of waters and marine resources, and the preservation and restoration of biodiversity and ecosystems as some of its environmental goals.

The taxonomy of these four environmental objectives: protection of biodiversity and ecosystems, preservation of water and marine resources, mitigation of climate change, and adaptation to climate change, has immediate implications for Maltese and European economic activities that support them. As a result, all related investments are considered as sustainable investments. This also applies to the other two EU environmental objectives, which are preventing and controlling pollution and implementing a circular economy.

Any activity pursuing one of these six objectives must meet three requirements in order to be considered sustainable: it must make a significant contribution (the EU establishes criteria for this purpose); it cannot materially impair any of the other five objectives; and it must adhere to minimal protections for governance and labour rights.

Assessment

While taxonomy alignment of corporate activity is required to be reported in the EU starting in January 2023 for some organisations (financial companies starting in January 2024), the actual adoption of the taxonomy in business is voluntary.  It is still unknown what the taxonomy alignment requirements will be.

Since the EU taxonomy is so comprehensive, it is difficult and complex to designate an investment activity as taxonomy-aligned.

The EU Commission aspires to improve this presence and impact by making the taxonomy easier to use. For this reason, in 2023, it adopted a Communication and a Recommendation.

The private sector and the member state authorities are the targets of the recommendation, which asks them to support and promote the availability of transition finance to the economy. Concurrently, on November 22, 2023, the European Union passed the Regulation on European Green Bonds. According to the Regulation, bonds whose revenues are distributed to assets and expenses that are in line with taxonomy before they mature are designated as European Green Bonds (EuGB).

The corporate sector and the appropriate authorities in Malta have great opportunities thanks to the EU’s drive to facilitate taxonomy performance and the EuGBs’ taxonomy-based structure. Should you require any further information in this respect, please do not hesitate to get in touch with our experts.