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The EU has embarked on an effort to introduce sustainable finance regulations, in part motivated by the need to drive climate goals through the financial sector. A key component of this is the Taxonomy which will define which economic activities can be considered “green”. An initial decision on the Taxonomy was made on 18th December 2019 and it is likely to have impacts on both finance and industry globally as a result of increased disclosure requirements and potential pressure to conduct business compliant with the Taxonomy. The Taxonomy is initially focused on climate change issues but will be expanded to cover other environmental issues. Given the implications for a range of industrial sectors, the Taxonomy process was heavily lobbied during 2018-19, with the majority of business lobbyists pushing for a weak outcome.
The InfluenceMap report, The EU’s Sustainable Finance Taxonomy, released December 2019, tracked intensive lobbying by EU trade associations representing finance and industry, on the regulatory process. This research was covered widely in the media in Europe and globally, including in the Guardian, FT and Politico. The following briefing focuses on how Japanese industry associations lobbied the Taxonomy and considers how these lobbying positions contrast with those of some leading European financial institutions.
While the majority of lobbying came from within the European Union, the policy has also seen opposition from international business trade associations, seemingly concerned at the global implications of an ambitious EU taxonomy. International financial trade association, the Institute of International Finance (IIF), has also engaged with the European Commission, arguing against what it calls "very ambitious and potentially unrealistic criteria… particularly for the production of electricity from hydropower and gas combustion.”
The powerful Japan Business Federation (Keidanren) led a group of Japanese trade associations in engaging directly with the European Commission to oppose a progressive Taxonomy. In a September 2019 position paper assessed by InfluenceMap, Keidanren argued that the Taxonomy could “(destabilize) international financial markets” and that standardisation could stifle “business-led disruptive innovation”. Keidanren was scored by this research as being the most oppositional industry association of any origin (EU or otherwise) to an ambitious EU Taxonomy.
Keidanren stated that the proposed Taxonomy did not reflect the concerns of non-EU countries. It warned against the international standardisation of the Taxonomy. Furthermore, whilst opposing a ‘brown’ taxonomy on the basis that it could create “reputational risk” for certain sectors, Keidanren suggested that the green taxonomy should not be “arbitrarily eliminating specific economic activities, and the use of technologies and products, particularly fossil fuel”.
In taking these positions, Keidanren’s lobbying contradicted a group of positive financial institutions including Aviva and BNP Paribas who have consistently supported the view that by setting out common criteria, the Taxonomy would facilitate the flow of capital towards sustainable investments. Aviva and Natixis also stressed the importance of a ‘brown’ taxonomy in setting out how damaging different activities are. In its final report in March 2020, the European Commission’s Technical Expert Group reiterated how crucial the development of a ‘brown’ taxonomy is to the transition to a low-carbon economy.
In addition to Keidanren, InfluenceMap has found evidence of lobbying on the Taxonomy by seven other Japanese trade associations (all of which are Keidanren members with exception of The Japan Business Council in Europe) looking to weaken the Taxonomy.