The European Economic and Social Committee (EESC) calls on the European Commission to publish an overdue report to consider extending the EU's sustainability taxonomy's scope to social objectives.
In an own-initiative opinion approved in plenary, the EESC asks the Commission to describe the provisions that are required to extend the EU sustainability taxonomy's scope to other sustainability objectives, such as social objectives. The Commission is mandated by the Taxonomy Regulation to publish a related report, but has so far failed to do so.
The EESC calls for a holistic EU taxonomy, which includes environmental as well as social sustainability. A social taxonomy would help to channel investment towards social goals, said rapporteur Judith Vorbach.
It should constitute a gold standard, reflecting a higher level of ambition than provided for in legislation, she added.
The EU taxonomy is a classification system establishing, for the time being, a list of environmentally sustainable economic activities for the scale up of sustainable investment, and it therewith supports the European green deal. The EESC is of the opinion that social aspects also need to be considered when assessing the sustainability of economic activities. It could refer, for example, to the European pillar of Social Rights and the Sustainable Development Goals.
Indeed, it will be controversial to determine which economic activity should be considered as socially sustainable. But, this is exactly the reason why the definition process should be subject to democratic debate and decision making. Judith Vorbach commented, "Thus, a common idea of sustainability could be developed, to which individual actors could refer. Moreover, the success of the taxonomy is linked to its credibility, and the activities included must meet a widely accepted definition of sustainability.”
Tackling false claims
A social taxonomy would help tackle bogus claims by businesses that want to attract socially responsible investors through accurate information about their social footprint. If the social taxonomy is framed in a smart way, it will be able to provide an essential contribution to avoid so-called 'social washing', in the same vein as 'green-washing'.
Dominika Biegon, a member of the study group, echoed the importance of adding a social wing to the EU's sustainability taxonomy, in order to redirect investment flows towards socially sustainable activities, but without that leading to a privatisation of publicly provided social services. While a social taxonomy could lead to additional reporting, requirements could be minimised by referring to related legislations such as the planned Corporate Sustainable Reporting Directive (CSRD).
Demand and supply
Another member of the study group, Kęstutis Kupšys, stressed that the financial industry is awaiting a dialogue on a social taxonomy.
There is a demand for sustainable financial products in the market, including for social sustainability" he said. "Unless we get a clear classification on what is considered 'social', we will miss this aspect in the area of sustainable investments.
The benefits related to a social taxonomy are numerous. A reliable taxonomy can help measure social sustainability effectively and could also help to minimise risks due to socially harmful activities. Transparency is crucial. The EU should build on its strengths and strive to become a front runner of both environmental and social sustainability.