EU taxonomy: in the future, all (construction) projects, products and services are to have precise descriptions of their sustainability

The EU Commission wants to achieve a zero-carbon strategy also in the realm of buildings.The Commission in Brussels is starting with the financial sector to get the transformation of the European economy to climate neutrality on track

The EU Commission is getting serious about its climate policy: the 1st step of the so-called taxonomy came into force on January 1, 2022. What is meant by this is that in future the sustainability of every project is to be described on the basis of precise criteria – comparability is to be created on the basis of facts, and every purchaser is to be guided by this, starting from citizens right up to large corporations.

The taxonomy is a central step in the implementation of the “European Green Deal“.

For the construction industry, and thus also for the natural stone sector, the taxonomy will be of particular importance. Whereby, we want to reveal here already, natural stone is well positioned.

One after the other.

What is surprising about the current state of affairs is that the new regulations initially apply only to the financial sector (and are voluntary until 2023). They state: Large banks, financial service providers, insurance companies or funds, to name just a few, will have to prepare annual sustainability reports in the future (comparable to their previous reports on Corporate Social Responsibility, CSR).

Under point 18 of the Taxonomy Regulations is said: “Fund managers and institutional investors that make available financial products should disclose how and to what extent they use the criteria for environmentally sustainable economic activities.“

In plain language, this means that financial companies must state how much of their sales comes from ecologically sustainable activities. For example, if a bank gives an investor money for a new building, it must check how sustainable the building is, i.e., obtain information on the life cycle assessments of the building materials used or the energy consumption of the building in operation, and state this in its report.

This makes it clear why the Commission is focusing primarily on the financial sector and requiring sustainability reports from it: Investors are to pass on the pressure for sustainability to the construction companies, and the latter to their suppliers.

In the process, the public is supposed to stand by as a watchdog in the background, we add: experience from shareholder meetings, for example, shows how small investors, together with the press, can exert pressure and push issues prayerfully.

Indeed, the financial sector has a key role to play in transforming the economy: the Commission estimates the annual investment required at several hundred billion €. The express aim is that private money should also be made available for this purpose.

As a reminder: just as former agrarian societies became industrial nations around 1830 – the key words being railroad, coal and the steam engine, and later oil – this previous economic model is now to be shifted in the direction of climate neutrality.

Key words in the future are “green“ energies (wind, sun, hydroelectric power…) and zero CO2 release. The latter means that all climate gas that comes out of the chimney somewhere, for example in an industrial combustion process, is removed from the atmosphere again somewhere else in another process.

Another key concept is circular economy, i.e., reuse and closed raw material cycles.

A central component of the taxonomy is the Technical Screening Criteria. For the most part, they are still being worked out.

The natural stone industry is already very well positioned in this respect: the German and Finnish associations have life cycle assessments of their materials, and the members of the Swedish association have recently set themselves the goal of climate neutrality by 2029. In France, there is a life cycle assessment for gravestones.

Metaphorically speaking, these companies already have the answers ready before the relevant questions have been asked on the part of the clients.

In order to tame the huge topic of the transformation of the economy into file covers in the first place, the Commission has created 6 central categories.

* climate change mitigation;
* climate change adaptation;
* the sustainable use and protection of water and marine resources;
* the transition to a circular economy;
* pollution prevention and control;
* the protection and restoration of biodiversity and ecosystems.

The DNSH (Do No Significant Harm) test is of central importance here: a project should not only be considered in terms of one of these categories, but in terms of all of them. “Greenwashing“ must not be possible, according to the Commission’s goal.

A current example is the dispute between EU member states as to whether nuclear power should be classified as sustainable in the taxonomy: Some point out that no CO2 is released in the generation of such electricity, while others counter that the waste materials are extremely toxic and long-lived, and to that extent threaten ecosystems.

Finally: the Commission stresses at every opportunity that the taxonomy is “of central importance (to) ensuring the long-term competitiveness of the economy,“ as the regulations state. Meaning: Since the other two economic super-heavyweights, China, and the U.S., also have the issue of climate protection on their agendas, Brussels wants to be one step ahead of the competition when it comes to the relevant technologies and products.

By the way, social aspects in production also play a role in the taxonomy regulations. This means that in the future, supplier countries that face accusations regarding child labor or criticism of their working conditions will hardly be able to place their products on the EU market.

We asked Euroroc, the umbrella organization of the European natural stone sector, for a comment. General secretary Professor Gerd Merke sent us the following thoughts:
“May I pour a little water into the wine?

The quoted principles of the EU taxonomy sound very positive for natural stone. A sustainable product that can enjoy the goodwill of the EU Commission. However, we have to realise that natural stone is not only bought as a staircase, façade or floor covering, but is part of an overall building. In other words, the market for natural stone cannot exist without the other building materials. We are therefore dependent on sustainable building in general having a positive aura.

It is true that the taxonomy regulations will first affect the banks and financial service providers, but this will have an impact on the economy as a whole. How is a lender supposed to check whether a financial commitment to a building is sustainable in the long term? If existing buildings are renovated and trimmed for energy efficiency, this may still be feasible in some way. New buildings that interfere in any way with the existing natural environment always involve the consumption of natural areas. This means that all new activities in the building sector will come under pressure to justify themselves, which will inhibit economic development. This becomes particularly clear when it comes to lending. Today’s borrower not only has to strip naked in front of the lender, but every single fold of skin is examined for dust particles. This is not a chicanery of the financial industry, but the legislator forces the lenders to do so. If the requirements are disregarded, the management is personally liable. No employee of a lender can reasonably take such a liability risk. To make matters worse, this control of all the borrower’s income must not only be carried out once when the loan is granted, but must be repeated regularly every year. This means an almost unbelievable bureaucratic burden for all involved. Moreover, it has not been clarified what is to happen in the event of a deterioration in creditworthiness? Who assesses this and should it then lead to an extraordinary right of termination? No wonder that bank lending is declining and the ,private debt‘ sector is gaining more and more market share.

These thoughts may be a little far removed from natural stone, but they are intended to draw attention to the chains of effects of government measures. In the end, natural stone suffers, even though it is supposed to be promoted by the EU Commission as a sustainable product. The state must consider whether constant new interventions in the market do not worsen rather than improve the situation for those affected. Well meant is far from well done.“

The regulations on taxonomy in all languages of the EU member states

(07.02.2022, USA: 02.07.2022)