The question is … now what? We now have a common understanding of what economic activities substantially contribute to the biodiversity objective – but is this enough to mainstream private financing of these economic activities? Will the common classification provided by the Taxonomy framework assist with meeting the EU’s private finance objectives set out in the Biodiversity strategy for 2030 or international obligations under the Kunming-Montreal Global Biodiversity Framework. Or do we need tangible incentives and obligations to increase private financing of these economic activities?
There are still areas of uncertainty about what implementation of this delegated act will reveal. On the real economy side:
- In contrast to the technical screening criteria for climate mitigation which cover a high number of economic sectors, the technical screening for biodiversity only cover a small number of economic sectors. These economic sectors can be considered niche to say the least. This raises the question that if only companies within the scope of CSRD/ESRS disclose economic activities which contribute to the biodiversity objective – what activities will they report? Indeed are the companies within the scope of CSRD/ESRS the most relevant for biodiversity projects/activities which substantially contribute to the biodiversity objective? Are those companies which are focussed on protection and restoration of biodiversity (e.g. civil society, specific project vehicles, municipalities etc.) themselves in scope of CSRD/ESRS?
- What does the reduced ambition of the final CSRD/ESRS (e.g. many obligations now being subject to a materiality condition and many biodiversity datapoints being voluntary) mean for visibility of opportunities to invest in economic activities which substantially contribute to the biodiversity objective?
- Is their sufficient incentive for companies within the scope of CSRD/ESRS to report activities which substantially contribute to the biodiversity objective? While there are provisions to deal with where an economic activity contributes to more than one environmental objective, these are difficult to follow, and it remains to be seen how market practice will develop. Will the practical burden of demonstrating compliance with the technical screening criteria for biodiversity mean that in scope companies will not bother? Is it just easier to report activities which contribute to the climate mitigation objective to meet a target of taxonomy aligned activities?
On the finance sector side, the above observations cause concern about what information financial institutions will receive on economic activities which substantially contribute to the biodiversity objective? But a further problem relates to whether there will be any incentive for financial institutions to increase financing of economic activities which substantially contribute to the biodiversity objective? For example, will the regulatory requirements in relation to the suitability assessment reveal a specific focus on biodiversity (therefore requiring financial institutions to identify biodiversity investment opportunities to satisfy retail client demand)? It is not clear that compliance with the regulatory requirements would reveal a specific client focus on biodiversity and certainly current market practice in relation to the suitability assessment falls far short of what is required to reveal this client focus. This is despite the fact that our research points to the fact that retail clients would in fact be interested in biodiversity investment.
And what types of financial product would satisfy a specific client focus on biodiversity (in view of the technical screening criteria for biodiversity covering only niche economic sectors). And no doubt the biodiversity data landscape will bring additional complications to the greenwashing problem (which is currently being addressed from a climate perspective).
Therefore, there are significant questions as to how mainstreaming private investment in economic activities which contribute to the biodiversity objective will actually happen? What should be a virtuous circle of information about biodiversity investment opportunities, from the real economy to the finance sector and demand from finance sector (taking account of individual retail client demand) for biodiversity investment opportunities, may prove to be a vicious circle where neither mechanism works as it should.
The question then is whether the Taxonomy Regulation is fit for purpose in relation to the biodiversity objective? Climate mitigation and climate adaptation are economy wide issues and all organisations are implicated in these objectives. We have already concerns about whether the Taxonomy Regulation works for these economy-wide issues – but what additional complications come from the fact that only a few niche economic activities are relevant for the biodiversity objective? Is the Taxonomy Regulation and the surrounding regulatory architecture the right tool for mainstreaming private investment into these economic activities?
 Meanwhile other delegated acts under the Taxonomy Regulation set out the conditions for ensuring no significant harm in relation to the biodiversity objective.
 Kunming-Montreal Global Biodiversity Framework dated 19 December 2022
 Compared to the technical advice delivered by EFRAG.
 2DII, 2023, Assessing client preferences … lost in the maze? and Moving the blockers of retail sustainable finance for six countries
 2DII, 2022, What do your clients actually want? Understanding and estimating household demand for sustainable financial products