EU taxonomy and AML developments
EU Taxonomy As the name indicates, the EU Taxonomy is essentially a classification system. It establishes a list of environmentally sustainable economic activities in the context of the European Green Deal. The idea behind this EU Taxonomy is to provide companies, investors and policymakers with appropriate definitions against which economic activities can be considered for their environmentally sustainability. The objective is to redirect investors from potentially harmful businesses towards green companies. Obviously, any industry or company would prefer not to find itself on the list of undertakings in which investments are discouraged by the EU Taxonomy. The Taxonomy Regulation 3 , forming the basis for the EU taxonomy, entered into force on 12 July 2020. The taxonomy in itself is established through delegated acts by the EU Commission, some of which have already been issued and are applicable – most notably Commission Delegated Regulation 2021/2139 4 . The publication of this first delegated act was accompanied by the adoption of a Commission Communication on “EU taxonomy, corporate sustainability reporting, sustainability preferences and fiduciary duties: Directing finance towards the European green deal”. Article 2 of Commission Delegated Regulation 2021/2139 specifies that its Annex II defines the list of the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change adaptation and for determining whether that economic activity causes no significant harm to environmental objectives. Paragraph 13 of this Annex II is related to “Arts, entertainment and recreation” . Gambling is mentioned amongst the creative, arts and entertainment activities as follows: “Description of the activity Creating, arts and entertainment activities include the provision of services to meet the cultural and entertainment interests of their customers. This includes the production and promotion of, and participation in, live performances, events or exhibits intended for public viewing and the provision of artistic, creative, or technical skills for the production of artistic products and live performances. These activities exclude the operation of museums of all kinds, botanical and zoological
gardens, the preservation of historical sites and nature reserves activities, gambling, and betting activities as well as sports and amusement and recreation activities.” In the impact assessment 5 , the Commission also specifies that “the Taxonomy is set to be a dynamic tool that will develop and change over time” which “[reflects] market developments”. It also explains that “if, for any activity, there was a slight risk of harm to other sustainability objectives or further analysis was needed to assess potential impact, it would not be included. For example: Although “Gambling and Betting” has no obvious environmental impact, it has been left out due to significant social impact it can cause” . It is important to note that in the same context of the EU Taxonomy Regulation, a “social taxonomy” is currently in the works, in parallel to the environmental taxonomy. This comprises a classification of economic activities that are considered to contribute to social goals in the EU and should represent a guideline for investors, businesses and regulators regarding what is sustainable from a social perspective and what is not. A dedicated forum, Subgroup 4 of the Platform on Sustainable Finance (PSF), is tasked with advising the European Commission on further developing the EU taxonomy, improving its usability, and exploring its expansion to social objectives, activities that significantly harm the environment or activities that are neutral towards the environment. This group issued a draft report in June 2021 on the social taxonomy, in which gambling was mentioned. It is referred to somewhat bluntly as a “harmful sector”: “[…] To mitigate risks of unintended consequences or taxonomy loopholes, exclusion criteria or significantly harmful criteria could be introduced. This would ensure that harmful sectors or activities such as weapons, gambling and tobacco cannot qualify as socially sustainable despite e.g., good worker- related performance.” In the final version of this report, published on 28th of February 2022 following a consultation on its draft report, there is no mention of gambling. This is a positive evolution for the legal gambling business, but the unequivocally negative take on the sector in the first draft report suggests that the social taxonomy warrants close monitoring. If the entire gambling business were to find itself on the taxonomy
3 Regulation 2020/852 of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 4 Commission Delegated Regulation 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation and for determining whether that economic activity causes no significant harm to any of the other environmental objectives 5 http://ec.europa.eu/finance/docs/level-2-measures/taxonomy-regulation-delegated-act-2021-2800-impact-assessment_en.pdf
18 • IMGL Magazine • July 2022
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