Digital Taxonomy

SDIA definition

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Through the EU Taxonomy, the EU aims at providing transparency about the environmental consequences of companies’ activities and investments and stimulating to make these more sustainable through economic incentives. Moreover, the taxonomy (to a certain extent) mandates transparency about large and medium-sized companies’ economic activities.

The following objectives are what the EU defines as sustainable activities.

climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy; pollution prevention and control; and protection and restoration of biodiversity and ecosystems.

The EU maps out what does and does not count as a sustainable activity in multiple ways.

Firstly, it deems a company or investment “environmentally sustainable” if it “make[s] a substantial contribution to at least one of the EU’s climate and environmental objectives.” Thus, a company does not have to positively affect each of these criteria, merely one.

Secondly, for a company or investment to be deemed sustainable, it must also not “significantly harm” any of the other EU-defined objectives. In other words, it must not negatively affect any f the other criteria.

On top of this, an economic activity has to “comply with minimum safeguards” and “comply with the technical screening criteria.”

In making a more transparent map of companies’ activities and their sustainability, the EU strives to fight greenwashing strategies and stimulate to actually improve sustainability.

This economic initiative guides financial investors towards more sustainable investments. By increasing the transparency of companies’ activities in terms of sustainability, the EU taxonomy tries to create a guide on which investments are sustainable and which are not. If an economic activity meets the criteria mentioned above, the actor can receive an EU green bond, which will then fund sustainable investments.

However, the effectiveness of the taxonomy in finally providing practical green initiatives in the European Union is limited. In February 2022, the European Commission approved the Complementary Climate Delegated Act which now includes fossil gas and nuclear energy as sustainable as transitional energy sources, even though it realizes that these forms of fossil energy are far from sustainable. The act states:

It also covers economic activities that are clearly not climate neutral or renewable but could, under strict conditions and for a limited time, enable the transition towards a sustainable energy system, such as the economic activities in the natural gas and nuclear sector. (https://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2022-631_en.pdf)

This new adaptation of the EU taxonomy is greatly critiqued by environmental actors. Many of them deem the fossil lobbying machine as the reason for the now-turned failure of the EU taxonomy. In a letter to the president of the European Commission, the European Parliament Social Democrats voice their concern and refutal of the inclusion of these fossil energies.

To fulfill its ambition to be the global ‘gold standard’ for sustainable finance and pave the road to the EU’s alignment with the Paris Agreement, the EU taxonomy should be science-based and beyond public reproach. By including the production of nuclear energy as taxonomy compliant and by setting very broad thresholds for the definition of gas as a transition energy source, the proposed complementary delegated act falls short on both counts.

The EU Taxonomy does, however, stimulate climate mitigation in the IT sectors as a crucial role in reducing greenhouse emissions. In their first delegated act, the EU is clear about the significant role the manufacturing of goods plays in the climate crisis, especially in terms of the energy sector. (442/4) It proposes that mitigating this industry, that is, slowly decarbonizing it, is a crucial target of the EU taxonomy. In this perspective, it proposes that the industry is far from reaching net-zero but that its transitional status is crucial to reduce greenhouse emissions.(442/5)

the definition of sustainable acts within the digital infrastructure industry as can be read in section 8 on “INFORMATION AND COMMUNICATION.” Even though providing sustainable digital infrastructure is named as a sustainable activity, the European Union is yet to mention the crucial role the growing digital economy plays in the climate crisis.

The new Coalition Accord of the Netherlands mentions investments in both environmental sustainability, energy policy, and the digital economy. The accord also proposes how the Dutch government will regulate the tech world according to the digital economy, on which lies a huge investment focus. However, in contrast with the first delegated act of the EU taxonomy, the accord fails to mention the correlation between a growing digital economy, the increasing energy consumption, and how these affect the climate. That is, it discards how one affects the other.

As such, the SDIA proposes its own Digital Taxonomy. [SPACE FOR THE DELIVERABLE]

Other definitions

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Here we collect other definitions of the terms with a reference to the source.

To stick with the example above, Gartner defines Digitalization as:

Digitalization is the use of digital technologies to change a business model and provide new revenue and value-producing opportunities; it is the process of moving to a digital business. (https://www.gartner.com/en/information-technology/glossary/digitalization)

Related SDIA publications

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Related non-SDIA publications

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