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EU needs a usable, investor-centric and globally relevant social taxonomy

Sustainable Finance | EU Taxonomy
09 September 2021 | Policy Position
Sustainable Finance
EU Taxonomy
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EFAMA responded to a public consultation of the Platform on Sustainable Finance on a social taxonomy.   


Tanguy van de Werve, EFAMA Director General, commented: A usable, investor-centric and globally relevant social taxonomy would rebalance the EU´s sustainable finance strategy and grasp the full potential of ESG investing. The ongoing Covid 19 pandemic demonstrates that investments in projects addressing social needs cannot be neglected, and the recent surge in social impact funds with a 165%[1] net asset growth rate since the end of 2018, reveals a strong market appetite.”


Dominik Hatiar, EFAMA Regulatory Policy Advisor, added: “Although social risks and opportunities are more difficult to quantify, there is currently a clear regulatory gap, as social funds are unable to demonstrate taxonomy-alignment and can thus not be distributed along this channel of clients´ sustainability preferences under MiFID II. To avoid duplicating some of the reporting challenges created with the environmental taxonomy, the social taxonomy needs to be aligned with the current social data availability and will require investee company reporting ahead of investor disclosures.


EFAMA provided the following four policy recommendations for the social taxonomy:


  • The social taxonomy should be usable by investee companies and financial market participants. Social data is particularly scarce, and asset managers cannot respond to data points that do not exist. Therefore, the data availability situation must be considered first. The Platform should, for example, identify what legislative instrument would govern the reporting of companies against the social taxonomy. Harmonising the social taxonomy with the existing SFDR principal adverse impacts indicators, would also enhance the usability of the taxonomy.


  • Well-defined and universal standards and metrics for social objectives are missing due to their dependency on national context and legislation in social affairs. We believe it is essential to base the social taxonomy on globally recognised principles embedded in international treaties and standards, such as the UN Guiding Principles on Business and Human Rights or the OECD Guidelines for Multinational Enterprises. This would contribute to universally recognisable standards for social investing and maximise the potential for redirecting capital flows also in emerging economies. In this context, the Platform could consider relative thresholds differentiated by the economic development of a country.


  • It is currently premature to start categorising activities eligible under the social taxonomy. As a first step, the policy objectives of a social taxonomy need to be defined. A key question is whether the social taxonomy should build upon the environmental taxonomy in promoting the just transition‘-concept - addressing the social challenges in carbon-intensive industries and regions - or have a broader goal, such as fostering adequate living standards. Furthermore, the geographical focus (EU vs. global level) of the social taxonomy must be defined.


  • As a first step, we prefer a standalone social taxonomy (Model 1) as it does not require a review of the environmental taxonomy, which could result in a delayed application. Moreover, applying the social taxonomy in combination with the environmental taxonomy (model 2) would further narrow down the scope of an already small investable universe of taxonomy-aligned activities. However, in the long-term, once both taxonomies are fully established in practice, Model 2 could be considered to avoid conflicts where an activity qualifying as taxonomy-aligned from an environmental perspective would undermine social objectives, and vice-versa.


– Ends –



For further information, please contact:


Brandon Bhatti

Hume Brophy


Daniela Haiduc                                                 

Head of Communications                                              

+32-2-473 562 936                                                                               



Notes to editors:


About the European Fund and Asset Management Association (EFAMA)


EFAMA is the voice of the European investment management industry, which manages over EUR 27 trillion of assets on behalf of its clients in Europe and around the world. We advocate for a regulatory environment that supports our industry's crucial role in steering capital towards investments for a sustainable future and providing long-term value for investors. 


Besides fostering a Capital Markets Union, consumer empowerment and sustainable finance in Europe, we also support open and well-functioning global capital markets and engage with international standard setters and relevant third-country authorities.


EFAMA is a primary source of industry statistical data and issues regular publications, including Market Insights and the authoritative EFAMA Fact Book.


More information is available at



[1] Morningstar Direct data

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