Commission Delegated Regulation No. 2023/2486 introduced new table templates in which we should report what portion of turnover, CapEx, and OpEx qualifies for or complies with the Taxonomy. The tables contain two groups of six columns, in which we indicate what portion of a given KPI makes a significant contribution to specific environmental objectives and then whether it causes serious harm to those objectives.
In the previous version of the tables (published in Commission Delegated Regulation No. 2021/2178) environmental objectives appeared in the following order: (1) climate change mitigation, (2) climate change adaptation, (3) water and marine resources, (4) circular economy, (5) pollution prevention and control, (6) biodiversity and ecosystem protection and restoration. The objectives appear in the same order in the Taxonomy Regulation itself, in Articles 10-15. The 2023 Regulation changed the order of the columns on pollution (now fourth) and the circular economy (now fifth).
What is the reason for this change? None! This change is simply a mistake, the result of negligence on the part of those who drafted the amendment to the regulation at the European Commission and all those who reviewed and approved these changes (including the European Parliament and the Council, and of course all Member States). However, this change has entered into force, is binding, and must be complied with.
Now, 11,000 companies across the European Union will have to change their tables for reporting compliance with the Taxonomy. And before that, of course, 11,000 companies will modify their systems (whether based on Excel or more advanced tools) used for calculations. Even earlier, a specialist at each of the 11,000 companies will find this change and spend at least an hour checking the individual regulations to make sure they are seeing correctly and are not mistaken. They will probably also ask their colleagues, taking up their time. And some of those 11,000 companies will ask the law firms they work with for their opinions to confirm their assumptions. Hundreds of advisors will spend thousands of man-hours explaining to their clients that a change needs to be made this year (even if only a few minutes are devoted to this in a single training session, we are talking about a change affecting 11,000 companies). Added to this is the time spent by banks and investment funds on improving the systems that collect data on companies' compliance with the Taxonomy.
All this time could be used more productively, for example to develop decarbonization plans or implement due diligence processes. However, it will be wasted on completely pointless fiddling with spreadsheets caused solely by the regulator's negligence. We will have to do the same work again next year, because the Commission will eventually notice the error and make a correction.
Unfortunately, the costs of such errors are borne solely by companies. I am convinced that no one in the European Commission who introduced this senseless change will face any consequences. Nor will anyone who was supposed to verify the correctness of the draft delegated regulation. Nor any of their superiors. Someone simply moved the columns in the table. A minor error costing companies across the EU around €3 million (11,000 x 3 hours x €100/hour).
At MATERIALITY, I recommend that our clients ignore the swap of columns concerning pollution and circular economy in their 2023 reports. Errors made by regulators should be responded to with common sense.
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