Application of due diligence to sustainability

EU Taxonomy components

A common task at SINTEF Narvik is being asked to provide an evaluation of a business concept or project proposal. These are often addressing a topical issue, which increasingly is related to sustainability, greenhouse gas emissions or circular economy. If the proposal ticks these boxes it can come far in the financing systems, also helped by the requirement to present concepts with a “popular science” language. Eventually there is a need to examine the technical and economic basis, and often the lack of detail provided requires a fundamental approach.

For concepts relating to sustainability is important to examine the total impact of the concept. The first impression can be that a bio-based alternative product would reduce emissions by replacing a fossil-fuel based product. However the alternative may involve greater energy consumption or result in other environmental impacts such that the net impact is negative. For this reason it is necessary to make a thorough and holistic evaluation of the concept, including a Life-Cycle Analysis that considers all likely inputs and outputs.

EU Taxonomy

Earlier the evaluation of sustainability initiatives was rather uncritical – as long as it sounded like it addressed sustainability issues it received a positive reception. Reactions tended to focus on the hope that the concept might succeed. More recently the EU has seen the need for a more rigorous approach to the assessment of sustainability initiatives. This has resulted in an action plan on financing sustainable growth, which required the creation of a common classification system for sustainable economic activities, which has been given the term “EU taxonomy”. It is hoped that this will provide a framework for evaluating sustainability initiatives in a thorough manner. More details about the EU Taxonomy are available from this webpage.

As part of the EU Taxonomy a working group produced a report on ‘sustainable finance’, which included a Technical Annex that describes technical screening criteria for climate change mitigation objectives. This included sections dealing with:

  • Forestry
  • Agriculture
  • Manufacturing
  • Electricity, gas, steam and air conditioning
  • Water, sewerage, waste and remediation
  • Transportation and storage
  • Information and communications
  • Construction and real estate activities

The preparation of financing proposals for R&D&I will require familiarity with the EU Taxonomy concepts. Hopefully this will increase the transparency and efficiency of sustainability actions. The reports from the Technical Expert Group on Sustainable Finance can be downloaded from the EU Taxonomy webpage. Before you press the print button, be aware that the Annex runs to 600 pages. This underlines the complexity of sustainability issues.

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