KEY TAKEAWAYS

• The Minimum Safeguards (MS) provision of the EU Taxonomy Regulation requires companies involved in environmentally sustainable activities to respect basic human rights and follow good business conduct rules. Practical implementation of the provision has proven challenging, however, due to the wide breadth of its underlying principles.
• The Platform on Sustainable Finance (PSF), an advisory body established by the European Commission, has recommended measures and processes to help businesses align their conduct with the MS provision.
• While providing clarity on the MS provision’s scope, the PSF report also raises the bar for business alignment with the provision. The PSF therefore estimates a significant decrease in the share of companies in compliance with the MS provision.
• The more detailed guidance may be particularly challenging for small companies with few resources or less-developed due diligence mechanisms
• Using ISS ESG’s EU Taxonomy Alignment Solution, this paper tests the PSF’s hypothesis by comparing different MS compliance assessment approaches for selected company samples.
• ISS ESG will continue enhancing its portfolio of products such as the EU Taxonomy Alignment Solution and Second Party Opinions to reflect the latest regulatory developments and provide investors with tools to assess MS provision alignment in a comprehensive manner.