Mr. David Owens:

I am grateful for the opportunity to speak to the committee. I am accompanied by my colleague, Ms Fiona Ralph. I am a principal officer in the climate unit in the Department of Finance and I deal with national and international climate priorities as well as sustainable financial services.

The EU taxonomy for sustainable activities is an extremely important piece of work. In a nutshell it defines what is sustainable for almost 40% of economic activities that are themselves responsible for up to 80% of our total emissions. We know that Ireland and the rest of the EU needs to substantially increase sustainable investment over the next decade. This investment cannot come solely from governments - private investors must also crowd in. The taxonomy will encourage and guide investors to identify and channel money towards genuinely green investments. I will comment on the purpose of the taxonomy and its relevance to today’s topic before turning to the state of play in its development.

The taxonomy is a classification system developed at EU level. It aims to specify technical, science-based criteria for assessing whether specific economic activities make a substantial positive contribution to climate change while doing no significant harm to the environment and simultaneously meeting minimum safeguards. The taxonomy will evolve over time with more activities being added. It will also reflect technological advances. The Commission’s website offers a useful taxonomy compass tool, which can be used to check the requirements sector by sector. For example, the taxonomy sets out the conditions that a variety of activities related to the renewable energy sector must meet in order to be deemed sustainable, from electricity generation, storage, manufacture, transmission and distribution to solar, wind, geothermal, renewable non-fossil gaseous and liquid fuel and bioenergy. It is primarily aimed at large companies and the financial services sector to guide and mobilise investments in activities to achieve carbon neutrality.

Although it is voluntary for companies to spend or invest in taxonomy-aligned activities, certain companies in scope must report on the extent to which their business is aligned with the taxonomy’s standards. The EU and its member states are also working with other countries to agree a common set of standards that can be applied globally.

The taxonomy should be beneficial in a number of ways. Investors will be better able to identify opportunities and confidently invest in projects and companies that have a substantial positive impact on the climate. Corporates and financial services firms will improve transparency on sustainability impacts, risks and opportunities due to the taxonomy and other complementary transparency legislation. These factors should help to shift investments to where they are most needed for the transition to net zero, while helping citizens, corporates and governments to keep an eye on where the money is going.

I will now outline the state of play in its development. The overarching regulation came into force in 2020 and set out six environmental objectives: climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and the protection and restoration of biodiversity and ecosystems. To be considered sustainable, an activity must make a substantial contribution to one or more of those six objectives and do no significant harm to the other objectives. It must also meet minimum social safeguards and comply with technical screening criteria related to the objectives.

The detailed requirements for these objectives are set out in a series of delegated Acts, one of which came into force on 1 January 2022 and covers climate mitigation and adaptation. A complementary Act, covering the requirements for natural gas and nuclear power, was adopted by the Commission on 2 February and, unless rejected by the Council or the European Parliament, will come into force next year.

Reporting requirements for firms in scope of the taxonomy are also in force as of this year. These reporting requirements are complementary to those already existing and under development under some other notable EU legislation, such as the sustainable finance disclosures regulation and the non-financial reporting directive, which is currently being amended to become the corporate sustainability reporting directive.

The Commission has indicated that an additional delegated Act, covering the four remaining environmental objectives - water and marine, circular economy, pollution prevention, and biodiversity - is expected later this year. Consideration is also being given to expanding the taxonomy to cover intermediate, or transitional, environmental performance and social objectives.

In addition, under the European Commission’s 2018 action plan on sustainable finance, we are now negotiating a regulation for a European green bond standard that could come into operation in 2024 and aims to set a gold standard for green bonds to raise funds on capital markets.

As taxonomy alignment reporting beds in for corporates and becomes increasingly relevant for the public sector, it is reasonable to expect that Ireland’s public expenditure should increasingly demonstrate alignment with the taxonomy. I am happy to take questions.