The London-based think tank Chatham House (Royal Institute of International Affairs) recently published a report titled "Making Finance Sustainable Taxonomies Work for the Circular Economy - Lessons from the EU Taxonomy" on the topic. The report notes that investing in circular activities is still extremely underdeveloped despite the circular economy's critical role in fostering economic resilience, social welfare, and environmental renewal. It then goes on to explain how sustainable finance classifications can fill this funding gap.
According to the paper, the EU's Sustainable Finance Taxonomy is the most comprehensive and ambitious taxonomy currently in existence in terms of coverage and incorporating circularity.
The taxonomy was built around the atomization of specific economic activity, the research said, which constrained the potential for encouraging transformational changes.
The research also points out that many of the taxonomy's intended users are unaware of or unprepared for the numerous technological and procedural hurdles that must be overcome to satisfy the established circular economy contribution standards.
The paper emphasizes how the current policy and legislative environment for the circular economy is becoming more disjointed and now lacks the ambition and clarity required to promote the widespread adoption of additional activities.
The report's conclusion recommended three areas to address these difficulties:
(i) enhancing the architecture of the taxonomy;
(ii) enhance the taxonomy's usability;
(iii) Establish supportive governmental and legal frameworks.
Governments might consider giving targeted financial and capacity-building assistance to stakeholders who would be most impacted by the introduction of the taxonomy in terms of adopting circular economy indicators, data collection, and reporting procedures, according to the research.
