Final Report on Social Taxonomy: Summary and Key Takeaways

On Monday, 28 February, the Platform on Sustainable Finance published its Final Report on Social Taxonomy and presented it via a webinar. Our Head of ESG, Elisa Forletta-Fehrenberg, attended the webinar and has provided a brief summary of the report and next steps below.

Introduction:

The social taxonomy has been created to function in the same way as the EU Environmental Taxonomy and its ultimate goal is to provide investors with more certainty around the social aspects affecting their investments. 

The Platform on Sustainable Finance (the Platform) has created a blueprint for a social taxonomy, focusing on three priorities: 

• The need for affordable housing and healthcare 
• The need for socially inclusive measures for a just transition 
• The need to tackle a lack of definitions (of what is a socially sustainable activity) 

The Platform based its proposal for a social taxonomy on international norms, principles & goals such as the United Nations Declaration on Human Rights and the objectives proposed are based on a fundamental respect of the rights of stakeholders (communities, employees, etcetera) and the objectives are: 

1. Decent work (which includes the sub-objectives of social dialogue, living wages, health and safety, lifelong learning) 
2. Adequate living standards and wellbeing for end-users (which includes the sub-objectives of healthcare, social housing, long term care and education) 
3. Inclusive and sustainable communities and societies (which includes the sub-objectives of access to basic economic infrastructure and inclusion of people with disabilities) 

How the social taxonomy will work:

For investments to – in future – comply with a social taxonomy, the economic activities must substantially contribute to social objectives by: 

• Avoiding and addressing negative impacts: e.g. activities in sectors with high social risk, these need to be addressed by ensuring adequate processes in companies; 
• Enhancing the positive impact inherent in the economic activity: e.g. activities that contribute to the reductions in the number of people without access to products and services to meet basic human needs. 
• The economic activities can be identified and analysed using NACE  (Nomenclature of Economic Activities) codes for the respective economic activities.  

With regard to minimum safeguards, the focus will be placed on the environmental safeguards and the Do Not Significant Harm criteria, which will need to cover all activities of the investee companies. The goal of these will be to ensure that those companies are not involved in violating taxation, corruption, child labour/forced labour, themselves and also their supply chains. 

It is worth noting that externalities affecting companies under the social lens will be mainly dictated by geopolitical factors. 

Next steps:

The final report has been published on Monday, 28 February and will now be reviewed by the European Commission.

The Platform will now be set to define KPIs for measurements of achieving those objectives. 

In the meantime, companies can already start to be proactive in contributing to the new generation of regulations (e.g. Corporate Sustainability Reporting Directive, Corporate Due Diligence Directive, and the Social Taxonomy) and start: 

• Identifying economic activities which contribute positively to objectives, 
• Searching for indicators, 
• Starting to measure and report voluntarily, 
• Encouraging the development of market-led taxonomy and standardisation.

These steps will ultimately benefit the companies’ resilience, the communities in which they operate and the investors.

For additional information on this matter, please do not hesitate to contact our ESG legal advisory team if you have any questions.