The Association for Financial Markets in Europe (AFME) recently published an insightful report highlighting challenges financial market participants face during "do no significant harm" (DNSH) analysis under the EU Taxonomy: https://www.afme.eu/publications/reports/details/a-review-of-the-dnsh-assessment-in-the-eu-taxonomy---progress-gaps-and-pathways-forward?utm_campaign=dnsh2024&utm_source=afme&utm_medium=social
A widely held view in the market is that DNSH assessments are inherently complex, primarily due to the lack of clear regulatory guidance and the qualitative nature of most DNSH criteria, which can be subject to varying interpretations by different market players. The complexity of DNSH analysis and, particularly resource constraint to perform DHSN analysis caused many banks to opt out of reporting taxonomy alignment for their mortgage portfolios, specialized lending, or use-of-proceeds debt. Instead, banks are now advocating for regulatory approval to rely on documentation provided by borrowers that verifies DNSH compliance.
The report also provides valuable insights into the challenges asset managers and investors face due to DNSH complexity. It explores potential simplifications to the DNSH process (e.g. replacement of DNSH analysis with existing environmental certificates / adaptation of DNSH criteria for non-EU exposures), which could significantly increase the adoption of EU Taxonomy within sustainable finance frameworks of lenders and investors.
On a separate note, the report contains a useful table mapping relevant environmental certificates that can assist with DNSH assessments for activities in specific sectors, such as commercial and residential real estate, infrastructure, and more.
There are also thoughts on the role of technology in supporting market participants with DNSH analysis. I am wondering if anyone has come across or used a vendor or platform-not just a data provider-that performs DNSH assessments of economic activities or assets?
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King regards,
Anastasia Kuznetsova
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