Sustainable Markets

The European Commission’s technical screening criteria for green buildings may not be a major game-changer for the issuance of green bonds, as long as issuers offer proper transparency regarding the extent their green bonds are taxonomy aligned with EU regulation. That said, the criteria could become an increasingly important differentiating factor.

architectural photograph of glass wall building


In November last year, sustainable markets experienced some turmoil following publication of the European Commission’s draft delegated act establishing the technical screening criteria for climate change mitigation and climate change adaptation3. Climate change mitigation and climate change adaptation are the first two of the six environmental objectives set by the EU taxonomy regulation that came into force in July 2020.

The EU taxonomy regulation classifies economic activities as environmentally sustainable only if they meet one of the six sustainability objectives, do no significant harm (DNSH) to any of the other environmental objectives, are compliant with the defined minimum social safeguards, and comply with the technical screening criteria.

The EU taxonomy identifies the following six sustainability objectives

1) Climate change mitigation

2) Climate change adaptation

3) Sustainable use and protection of water and marine resources

4) Transition to a circular economy, waste prevention and recycling

5) Pollution prevention and control

6) Protection and restoration of biodiversity and ecosystems


The technical screening criteria will be set by separate delegated regulations. The criteria for climate change mitigation and climate change adaptation should become applicable per 1 January 2022, while the technical screening standards for the other objectives will be established at a later stage and should apply from 1 January 2023.

The finalisation of the technical screening criteria is, for many financial market participants and financial advisers, the anxiously awaited missing piece of the taxonomy puzzle. After all, as of 10 March 2021 they have to disclose to what extent their financial products or investments qualify as environmentally sustainable under the sustainable finance disclosure regulation (SFDR). Knowing whether their products or investments meet the technical screening criteria is therefore key.

However, finalising the technical screening criteria is proving to be a longer process for the European Commission than initially anticipated. The main reason is the flood of questions raised during end of last year’s consultation period regarding the November draft proposals. In particular, the technical screening criteria proposals for buildings received substantial pushback from sustainable market participants.

The green buildings criteria issue: the shift from best-in-class to EPC

Within the draft delegated act, the European Commission proposed to subject buildings built before 31 December 2020 to a class A energy performance certificate (EPC) requirement. For some countries, this would leave a negligible part of their building loans as eligible, as:

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