The bitter dispute over the green taxonomy of the EU is just about to be decided when representatives of churches and social economy in Germany are already demanding an explosive expansion: a social taxonomy. The green taxonomy is a classification system for which economic activities are climate and environmentally friendly. It has to be green washing prevent, so the bad habit that companies or investment funds sell themselves as more ecological than they really are. Trouble like now with the fund company DWS should be avoided. The EU Commission hopes to increase confidence in sustainable financial products and attract more investor money.
However, the authority drew a lot of resentment when they determined in Februarythat under certain circumstances investments in nuclear and gas power plants should also be considered sustainable. Shares in the operating companies could therefore be found in eco-funds from 2023 onwards. This Tuesday, committees of the EU Parliament will vote on whether they want to block this taxonomy decision – the final vote is due in three weeks in plenary.
These quarrels do not prevent the Bank für Kirche und Diakonie from quickly demanding the introduction of a social taxonomy: the Commission should also determine which economic activities are social, i.e. increase the well-being of people and communities, analogous to the green catalog of criteria.
The bank, based in Dortmund, supplies money to Protestant social institutions and aid organizations, such as the Diakonie. The institute now has an open letter sent to Commission President Ursula von der Leyen, with the support of church groups.
It states that without a social taxonomy, there is a risk of “prospectively more difficult financing conditions for the social economy”. The concern: If the EU clearly regulates what is green but not what is social, investors who want to invest sustainably could put their money in green funds and bonds rather than in funds that finance social activities. “We see a great danger there,” said CEO Ekkehard Thiesler Süddeutsche Zeitung. “Climate protection is very, very important to us, but the social side should not be forgotten.”
So far, the Commission has been hesitant
Thiesler also fears that state development banks such as KfW would also be guided by the EU taxonomy and would therefore reallocate funds away from social towards green activities: “Then all the development loans will go to climate protection because the taxonomy assesses this as sustainable. ” He is already observing such shifts, “and we are afraid that this will be the case even more if there is no social taxonomy”.
In fact, three and a half months ago, an EU expert group did 84-page report presents what a social taxonomy to complement the green one could look like. According to this, the classification system is intended to assess how companies contribute to three goals: good working conditions for their employees and those of suppliers, the well-being of customers and product users and an inclusive society.
In addition, certain goods are to be defined as socially harmful, such as cluster bombs. Their manufacturers could not be considered socially sustainable and issue social bonds even if they treated their workers like royalty and were the main sponsor of the local wheelchair tennis club.
How sustainable are arms factories?
However, the EU Commission has so far shown no interest in really initiating the introduction of a social taxonomy. Apparently, the authority is satisfied with the grueling dispute over nuclear and gas-fired power plants when it comes to green regulations. Brussels would then like to forgo discussions about what is socially sustainable, it seems.
Bank manager Thiesler considers the fear of escalating debates to be exaggerated. There are enough international agreements on social standards and rights that the EU can use as a basis for its taxonomy, he says: “There is agreement on 95 percent of the issues, but there can be disagreement on five percent.”
The role of the armaments industry would probably belong to this five percent. The German industry association BDSV already demands precautionary that a social taxonomy must classify its members as sustainable. After all, the products served peace and security. But many investors may find the idea of social bonds funding arms factories odd. Bank boss Thiesler would also be against giving the industry the coveted sustainability logo: “You don’t know where the weapons produced will be used – for defense or for attack?”