Corporate Governance

Shearman & Sterling LLP The Rise of the Green Loan Market | 37 The EU's Green Taxonomy One of the significant milestones that has recently been reached as part of the European Commission's 2018 action plan on sustainable finance — largely to counter greenwashing and the application of multiple ad hoc standards — is publication in June 2020 of the Taxonomy Regulation, 3 touted as the "world's first ever green list." The Taxonomy Regulation is significant because it establishes an EU-wide classification system — in effect, a glossary or "taxonomy" — for determining whether an economic activity is environmentally sustainable for purposes of investment. It purports to provide businesses and investors with a common language to identify which economic activities can be considered "green." Although the Taxonomy Regulation has a prescribed scope, the mere fact that a pan-European package of "green" criteria has been published for the first time in a rulemaking instrument will likely give the Taxonomy a much larger life. At least for the time being, The Regulation Recognizes Six Broad "Environmental Objectives:" 1 Climate change mitigation 3 Sustainable use and protection of water and marine resources 5 Pollution prevention and control 2 Climate change adaptation 4 Transition to a circular economy (i.e., waste prevention, reuse and recycling) 6 Protection and restoration of biodiversity and ecosystems The technical screening criteria of the Taxonomy Regulation are its centerpiece and will be developed in stages. So far, the Technical Expert Group, a body of the European Commission, has developed technical screening criteria for 70 activities in eight economic sectors contributing to climate change mitigation and 68 activities contributing to climate change adaptation. The sectors covered so far include agriculture; forestry and fishing; manufacturing, electricity, gas, steam and air conditioning supply; water, sewerage, waste and remediation; transportation and storage; information and communication technologies and construction and real estate. Criteria for the remaining objectives will be forthcoming. European Union The EU is taking more concrete steps in this area, albeit in stages and not as yet complete. In May 2018, the European Commission adopted a package of measures to implement its ambitious action plan on sustainable finance. The package has included: • Revision of voluntary guidelines that accompany the EU Non- Financial Reporting Directive applicable to large public interest companies with more than 500 employees, in order to provide guidance on disclosure of climate- related information in line with the Financial Stability Board's Task Force on Climate-related Financial Disclosure, as well as metrics developed under a new Taxonomy, discussed below • Requirements relating to sustainable investments and sustainability that oblige institutional investors and asset managers to disclose how they integrate ESG factors in their risk processes • Requirements for new EU benchmarks of low-carbon and positive-carbon impact benchmarks, as well as related disclosure requirements for benchmark administrators • A forthcoming EU green bond standard and EU eco-labels for retail investment products the Taxonomy is likely to become the go-to reference point for sustainability criteria in any investment or financing context, potentially regardless of jurisdiction. 3 Regulation (EU) 2020/852.

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