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EU Omnibus Proposal: Potential Impacts on the Sustainable Debt Market

Below is an excerpt from ISS-Corporate’s recently released article “EU Omnibus Proposal: Potential Impacts on the Sustainable Debt Market”.

On February 26, the European Commission published the first Omnibus simplification package of proposals seeking to simplify sustainable finance rules. In addition to Omnibus I, which focuses largely on sustainability reporting and due diligence (see ISS-Corporate’s coverage), the package includes proposed changes to the EU Taxonomy. The proposed amendments to the Taxonomy Disclosures Delegated Act, the Taxonomy Climate Delegated Act and the Taxonomy Environmental Delegated Act entered a four-week feedback period.   

Debt issuers within and beyond the EU are using the EU Taxonomy to demonstrate the environmental sustainability of their activities and projects to investors. Since 2022, ISS-Corporate has assessed over 50 green and sustainable finance frameworks designed to allocate proceeds to taxonomy-aligned activities. Many more frameworks from our global clients closely – or fully – align their project categories with the EU Taxonomy’s substantial contribution criteria, signaling their ambition.  

While the value of a common definition is widely recognized, the EU Taxonomy has faced criticism for being too narrow and restrictive, with limited international applicability and insufficient consideration of transition assets. On February 5, the Platform on Sustainable Finance published a report acknowledging these shortcomings and proposing avenues to simplify and enhance the  Taxonomy’s effectiveness. On the same day, the International Capital Market Association (ICMA) published a set of recommendations and comments in anticipation of the Omnibus and related regulatory simplifications.   

In this context, this market update note provides preliminary observations on the potential implications of the following changes announced on February 26 for the sustainable debt market:   

  • The proposed simplification of the EU Taxonomy’s Technical Screening Criteria (TSC), specifically the “Do Not Significant Harm” (DNSH) criteria.   
  • The announced introduction of criteria for “partial” alignment to the EU Taxonomy (based on a future proposal by the Commission).
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Authored By

Ioana Bejan, Sustainable Finance Research, ISS-Corporate

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