The role of the published report on Minimum Guarantees for companies
Companies – in order to qualify their revenues, CapEx, and OpEx as compliant with the EU Taxonomy, will have to demonstrate the implementation of policies, procedures, and due diligence mechanisms in relation to four issues: human rights, anti-corruption, bribery and unfair competition, and tax practices.
What is the context and legislative background of Taxonomy and Minimum Guarantees?
The taxonomy was introduced by Regulation 2020/852 EU in 2021 and therefore does not need to be transposed into Polish law or implemented in any other way. The taxonomy generates a direct obligation for companies. Public companies were already required to prepare a taxonomy report—to show what portion of their turnover, capital expenditures, and operating expenses are classified under this EU system and to include it in their reports for 2021.
What must companies do in 2022?
This year, companies will have to go a step further with Taxonomy. They will have to verify two aspects—whether activities classified under this system meet:
- Technical Qualification Criteria (e.g., whether a biogas plant meets specific emission criteria or whether the installations of a photovoltaic energy production company meet specific technical criteria)
- Minimum Safeguards, the recommendations and conditions for compliance with which are described in the Final Report on Minimum Safeguards published by the Platform on Sustainable Finance on October 11, 2022.
„In a nutshell, if a company meets the Technical Qualification Criteria of the EU Taxonomy but does not have the due diligence mechanisms described in the Minimum Guarantees in place, then none of its activities—neither revenues, CapEx, nor OpEx—will be compliant with the Taxonomy. In turn, non-compliance with the Taxonomy may mean limited access to capital or financing, including through the issuance of green bonds.” – explains Piotr Biernacki, ESG Reporting Partner at the consulting firm MATERIALITY.
What are Minimum Safeguards in Taxonomy?
Minimum Guarantees are an integral part of the European Union Taxonomy. The purpose of minimum guarantees is to prevent investments from being labeled as sustainable when they would have a negative impact in the following areas:
- human rights, including labor rights (e.g., combating phenomena such as workplace bullying), consumer rights, and community rights,
- corrupt practices,
- non-compliance with the letter and spirit of tax law,
- unfair competition.
„From a practical point of view, today's publication of the Final Report on Minimum Safeguards signals that now is the last moment to review your organization's policies, procedures, and due diligence mechanisms. Conducting such a review will enable companies to comply with the requirements of the EU Taxonomy, which is already mandatory for companies reporting under the NFRD. At MATERIALITY, we have developed a tool that enables companies to conduct this compliance review in a manner that is 100% compliant with the recommendations of the Platform on Sustainable Finance.„ – adds Artur Gazda, Senior ESG Reporting Specialist.
The recommendation on verifying compliance with the Minimum Safeguards has not undergone any significant changes compared to the draft report presented in July this year by the Platform on Sustainable Finance, which we have already written about. The Final Report on Minimum Safeguards was prepared by the Platform on Sustainable Finance at the request of the European Commission as an explanation of the application of the Minimum Safeguards defined in the Taxonomy Regulation.
What is the role of this classification system for the financial market?
As a reminder, the EU Taxonomy is a system that classifies companies' activities as environmentally sustainable or not in each of the three types of activity, i.e., it defines % of turnover, CapEx (capital expenditure), and OpEx (operating expenditure). The EU Taxonomy is part of the sustainability report, is included in the European Sustainability Reporting Standards (ESRS), and data for 2024 will be subject to mandatory external verification. Taxonomy indicators are required by financial institutions, in particular banks, insurers, and investment funds. The role of the Taxonomy is primarily to counteract greenwashing by showing what part of a company's activities are environmentally sustainable.
Downloadable file: Final Report on Minimum Guarantees, October 2022
Polish
English