Social Taxonomy report published by the platform on Sustainable Finance

Environmental and social issues have been pressing since the beginning of the European Union’s Sustainable Finance Strategy. Therefore, in 2020, the European Parliament approved the European Green Deal to ensure sustainable growth and environmental protection. As part of this, the Environmental Taxonomy provides a classification system for environmentally sustainable activities, which gives clarity and certainty for investors and decision-makers.

Two years later, on the 28th of February 2022, the Platform on Sustainable Finance published the final report on Social Taxonomy. A next step in harmonizing the measurement of social sustainability. The Social Taxonomy will aid investors to make informed and consistent decisions and helps to direct resources toward socially responsible activities and companies.

The environmental and social taxonomy are not mutually exclusive, rather, they complement each other and advance the progress toward green and just transitions.

The fundamentals of the Social Taxonomy

The Social Taxonomy is based on Human Rights principles, resting on Standards such as the International Conventions and guidelines. More specifically, the Social Taxonomy is led by principles set out in the International Bill of Human Rights, the ILO conventions, the UN Guiding Principles, and the OECD Guidelines for Multinational Enterprises.

The importance of the Social Taxonomy

There has been increasing recognition of a need for social investments in socially sustainable activities. Currently, the progression toward increasing social investments is hindered by a lack of definitions and a standardized classification system of what constitutes a social investment. The Social Taxonomy will lead to more clarification, making it easier for investors to find social investments. Moreover, there is a need for socially inclusive measures to accompany the green transition, ensuring a just transition for everyone.

The structure of the Social Taxonomy

The objectives of the Social Taxonomy are set out based on the type of stakeholders that can affect an economic activities of an entity. These are similar to the defined stakeholder groups in the Corporate Sustainability Reporting Directive (CSRD):

  • The own workforce (including value-chain workers)
  • End-users or customers
  • Affected communities (directly or through the value chain)

These stakeholder groups will have different objectives. These objectives will be measured through three substantial contributions made by the organizations. All three of these aspects are crucial for a social taxonomy.

  1. Activities that address and avoid negative impacts on workers, consumers, and/or communities can make a substantial contribution to these objectives.
  2. Activities with inherent social benefits for end-users, communities, and societies, which by their very nature contribute to social objectives.
  3. Enabling activities for all three objectives. For example, social auditing services which help to reduce negative impacts on value-chain workers.
Social Taxonomy structure
What can you do already, and how can we help?

Sustainalize, as a subsidiary of ERM can help you prepare for the Social Taxonomy reporting. We can establish a list of objectives and determine your economic activities within the company or portfolio, that contribute to these objectives. This way you create a clear overview of what needs to be done in order to comply with these regulations. We can also support you with human rights due diligence systems, processes, and assessments. On top of that, we help you frame economic activities that create positive social impact and set up tools for social impact measurement, focussing on the social outcomes of your activities.

Author
Morganne Kroon

Morganne Kroon

Consultant, Sustainalize

Published on: 7 april 2022

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