Publication alert: PSF - Final Report on Social Taxonomy
We communicate that the Platform on Sustainable Finance has published the Final Report on Social Taxonomy.
1. Context
The EC published in 2019 the European Green Deal, which sets out a series of climate and energy targets for 2030, and contains a commitment for Europe to become climate neutral by 2050. Furthermore, in 2020 the EC published the Taxonomy Regulation which provides uniform criteria for companies and investors to determine which economic activities can be considered environmentally sustainable. The taxonomy initially only covers environmental activities and objectives only and contained only limited reference to social sustainability. For this reason, the EC mandate the Platform on Sustainable Finance to also work on extending the taxonomy to social objectives.
In this context, the Platform on Sustainable Finance has published a Final Report on Social Taxonomy in which summarises the main initial observations and recommendations on this mandated task, and in which there are included social objectives, examples of these objectives, as well as metrics to be considered.
2. Main points
Social objectives. The Platform on Sustainable Finance suggests three objectives for a social taxonomy:
- Decent work (including value-chain workers). This objective focuses on people, in their working lives or as workers. The four pillars of the decent-work are: i) employment creation; ii) social protection; iii) rights at work; and iv) social dialogue. Decent Work has a list of sub-objectives (e.g. ensuring pay levels for workers).
- Adequate living standards and wellbeing for end-users. This objective focuses on people, in their role as end-users of certain products and services that either pose heightened health or safety risks or that have the potential to help people to meet basic human needs. As a sub-objective, for example, is ensuring healthy and safe products and services.
- Inclusive and sustainable communities and societies. This objective will emphasise respecting and supporting human rights by paying attention to the impacts of activities on communities and the wider society. It will achieve this by: i) addressing and avoiding negative impacts; and ii) making basic economic infrastructure available to certain target groups. This objective has sub-objectives (e.g. inclusion of people with disabilities).
“Do no significant harm” (DNSH) criteria in social taxonomy. The DNSH criteria ensure that when an activity makes a substantial contribution to one social objective, it does not harm the other social objectives. They have three main features/obstacles:
- Need for more granular DNSH criteria at the level of the sub-objectives.
- DNSH criteria might play an important role in some important social topics and sub-objectives.
Governance. The Platform on Sustainable Finance recommends 2 objectives:
- Strengthening sustainability aspects of traditional corporate governance.
- Strengthening corporate-governance aspects that are important for sustainability.
Metrics of a social taxonomy. There are included metrics on: i) safe and healthy working conditions; ii) anti-discrimination; iii) freedom of association; and iv) employment generation.
Harmful activities to be considered for a social taxonomy. Significantly harmful activities could be those which are fundamentally and under all circumstances opposed to social objectives. A source for identifying harmful activities could be: i) the international humanitarian law treaties; ii) a series of other conventions and protocols on specific topics.
Relationship between the social taxonomy and the environmental taxonomy. The Platform on Sustainable Finance considers two main differences between a social taxonomy and an environmental taxonomy:
- While most economic activities have detrimental impacts on the environment, most economic activities such as the creation of jobs, paying taxes and production of goods and services can be considered inherently socially beneficial.
- While environmental objectives and criteria can be based on science, a social taxonomy has to be based on international authoritative standards of topical relevance such as the International Bill of Human Rights.
3. Next Steps
The objectives presented in this report will constitute an input for the definition of the final objectives by the EC.
The Platform on Sustainable Finance has set several next steps for developing a social taxonomy, for example, to conduct a study on the impacts of a social taxonomy considering different options for application and designs.