EU Platform on Sustainable Finance finalises report on Taxonomy minimum safeguards

The EU Platform on Sustainable Finance (PSF) has today (11 October) published its Final Report on Minimum Safeguards, to help companies comply in practice with Article 18 of the Taxonomy Regulation.

We reported on the Draft Report in July this year and the good news for those trying to keep up with the recent spate of ESG developments is that the Final Report does not materially depart from the recommendations on approach made in the Draft Report. 

There have been some tweaks to the language used in relation to the "outcome element" of assessing minimum safeguards (MS) alignment (the language of "final court convictions" moving in places to refer to "liability established by a court" or "found in breach") but this does not appear to have any substantive impact on the assessment. 

Where the Final Report has developed is in relation to the discussion of assessing MS alignment (at least in relation to human rights) for sovereigns and sub-sovereigns. The PSF's thinking on this now appears more formalised and recommends that a two-fold approach be taken which looks at both: (i) whether the country has ratified relevant human rights conventions and recent reports on the level of implementation of such ratifications; and (ii) scoring in various human rights-related proxy indicators.

The Final Report is also more definitive in stating that if the forthcoming Corporate Sustainability Due Diligence Directive (CSDDD) does not align with the UN Guiding Principles on Business and Human Rights then compliance with the regime, when introduced, will not definitively mean MS alignment. However, the Final Report still does not acknowledge that such a divergence appears to exist. 

The Final Report represents the PSF's final thoughts on the assessment of MS alignment, although it continues to acknowledge that further work is needed (much of which was highlighted in the Draft Report). This includes reviewing the Report again once the CSDDD proposal has been finalised and taking further steps to look at how the "outcome element" might be assessed in practice, noting that there can be significant time delays in court proceedings and that companies often settle court cases and avoid being convicted. (For more information on the CSDDD proposal, see our client briefing.)

The Final Report will now need to be considered by the European Commission, which is not bound by the PSF's recommendations. It will therefore be important to continue monitoring this space as companies continue to grapple with assessing the degree to which their activities are Taxonomy-aligned.