The Platform on Sustainable Finance (PSF) has published its delayed final report on a social taxonomy, proposing a new structure in particular in response to concerns about administrative burden for companies that may need to report against such a framework.
Together with a report on an extension of the green taxonomy, the report on the social taxonomy will form part of a future review by the European Commission about developing the EU taxonomy framework.
The PSF’s final report though does not include all the technical detail – its purpose is to suggest to the Commission a general approach to the creation of a social taxonomy and evaluate the pros and cons of different types of approach.
According to the PSF’s report, the “most obvious impact” of a social taxonomy would be on financial market participants including institutional investors and issuers.
It would provide guidance on how social investments were defined and which criteria they would need to apply if they wanted to create or invest in a financial product with social objectives.
It also said a social taxonomy would help prevent the use of “already existing, but less-developed, systems when evaluating socially beneficial investments, thus preventing ‘social-washing’”.
Antje Schoeneweis, of the working group for church investors in Germany and PSF rapporteur for the social taxonomy work, highlighted that ESG ratings diverged more with respect to social matters than environmental issues.
She said there was a need for social investments and that investors were increasingly looking for social investment opportunities, as the demand for social bonds during the height of the pandemic showed. There was also a need to be able to better identify potential social risks, she said.
According to the advisory group, the next steps for developing a social taxonomy would include clarifying the minimum safeguards and working out a rationale for prioritising objectives and sub-objectives.
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