Never heard about the EU Social Taxonomy? Read on for a short summary!
While companies are still trying to make sense of the EU Green Taxonomy’s requirements (read my previous article on the subject), the EU communicated the development of an EU Social Taxonomy. Its future application remains uncertain but its objective is clear: defining what social activities undertaken by companies actually are and how to measure their impact.
Why a Social Taxonomy?
- The EU is working to set the framework required to achieve the 17 Sustainable Development Goals (SDGs) of the United Nations’ 2030 agenda. Several of the goals are social in essence and are therefore not yet addressed by the Green Taxonomy.
- It is urgent to create a social internal market as set out in the Treaty on the European Union (Article 3):
“It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment.”
TEU — Article 3
3. Investors are increasingly requesting social bonds (to finance social housing, healthcare, and jobs for target groups) and see social investments as an opportunity.
With which timeline?
The actual application of the EU Social Taxonomy has not yet been defined. The word on the street us that of a potential delay of the measure due to the urgencies on the current EU Timetable. Many argue that canceling the plans for an EU Social Taxonomy would be a grave mistake for society as a whole.
How will it be structured?
Companies will need to follow a similar process as when working on the EU Green Taxonomy.
First, social activities performed by the company will need to be identified and classified as per the listing which will be provided by the EU across 3 main categories: (1) Decent work, (2) Adequate living standards and wellbeing, (3) Inclusive and sustainable communities and societies.
Secondly, understanding and describing the company’s substantial contribution in this area will represent the core of the analysis. The EU will provide a guide including the key indicators to be taken into account.
Thirdly, as it is the case in the EU Green Taxonomy, companies will also need to prove that the identified social activity does not harm any of the other objectives defined in step 1.
Finally, minimum safeguards such as to ensure no inconsistencies will need to be investigated. Inconsistencies include counting a substantial social contribution for a company which in another area is acting against social and or governance principles.
The main difference between the EU Green Taxonomy and the Social Taxonomy resides in the definition of the 3 key objectives which can be detailed as follows:
Quantifying social indicators always has been and remains one of the main challenges linked to the EU Social Taxonomy. Work still remains in order to support companies in the quantification and collection of the required data for the Social Taxonomy.
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Sources:
EU Final Report on the EU Social Taxonomy; EU Green Taxonomy: What is it and why it matters?; Sustainable Development Goals (SDGs); Treaty on the European Union (Article 3)
