Policy Outlook

Minimum Safeguards Within the Upcoming EU Sustainability Taxonomy

When the European Union (EU) Regulation on the Establishment of a Framework to Facilitate Sustainable Investment is adopted, it will be the regulatory ‘umbrella’ under which the much-awaited EU Sustainability Taxonomy will be issued. In short, the EU Sustainability Taxonomy will be “a tool to help plan and report the transition to an economy that is consistent with the EU’s environmental objectives”.[1] These EU objectives were laid down in article 5[2] of a text that was agreed upon by EU institutions’ representatives in December 2019 (negotiated document). Together, they seek to support the achievement of a modern, resource-efficient, and competitive European economy where there are net-zero greenhouse gas (GHG) emissions by 2050 and where economic growth is decoupled from resource use.

A topic that has not received much attention in the current debate over the upcoming regulation is the role played by the “minimum safeguards” that target human rights. Contributing to this lack of human rights-related discussion is the common assumption that the EU Sustainability Taxonomy is all about climate change – an assumption reinforced by media and many publications. However, according to the negotiated document (article 13, see box), an economic activity will only qualify as environmentally sustainable, i.e. be considered taxonomy-aligned, if it meets minimum safeguards in the areas of minimum international human rights. In other words, the consideration of whether an economic activity is compliant with human rights standards precedes and, only if satisfactorily ascertained, enables an assessment of whether this economic activity is consistent with the EU’s environmental objectives.

Therefore, this analysis aims to address three key questions:


1. What are the main expectations for financial institutions outlined in the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights?

Financial institutions, and all enterprises, are expected to meet their corporate responsibility to respect human rights, which is defined under the UN Guiding Principles on Business and Human Rights (UNGPs) and reaffirmed by the OECD Guidelines for Multinational Enterprises (OECD Guidelines). A financial institution’s corporate responsibility to respect human rights applies to its own operations and business relationships (e.g. as a provider of financial products/services). In these contexts, a financial institution is to avoid infringing (via actions or omissions) on “the human rights of others and should address adverse human rights impacts with which they are involved”.[3] It is important to mention that the corporate responsibility to respect human rights “exists independently of State’s ability and/or willingness to fulfill their own human rights obligations”.[4]

When offering taxonomy-aligned products, financial institutions will be expected to conduct human rights due diligence, which is also the key expectation in the UNGPs and the OECD Guidelines. This involves financial institutions being able to “identify, prevent, mitigate and account for how they address their impacts on human rights”.[5] A source of clear and well-defined guidance on what human rights due diligence might entail across different industry sectors is the work of the OECD. Besides having issued a general due diligence guidance, the OECD frequently issues industry-specific guidance, such as for agriculture, garment and footwear, and mining. In addition, the OECD has issued two papers addressing due diligence expectations in the context of the financial sector: one focusing on institutional investors and another on general corporate lending and securities underwriting.


2. Which human rights are within the scope of the International Bill of Human Rights and the eight fundamental conventions identified in the International Labour Organisation’s Declaration on Fundamental Rights and Principles at Work?

The International Bill of Human Rights consists of the following documents adopted by the UN: (i) the Universal Declaration of Human Rights; (ii) the International Covenant on Economic, Social, and Cultural Rights and its optional protocol; and (iii) the International Covenant on Civil and Political Rights and its optional protocols. The International Labour Organisation’s Declaration on Fundamental Rights and Principles at Work includes eight fundamental conventions which address four key topics: (i) freedom of association and the effective recognition of the right to collective bargaining; (ii) the elimination of all forms of forced or compulsory labor; (iii) the effective abolition of child labor; and (iv) the elimination of discrimination in respect of employment and occupation.

The number of rights deriving from the above-mentioned documents, as well as the ways in which corporate action can impact them, is countless. Therefore, when conducting due diligence processes, the UNGPs and OECD Guidelines expect financial institutions to embrace a risk-based approach. A risk-based approach in this context means that financial institutions can prioritize issues based on their scale, scope, and irremediable character, if they are not able or if it is not feasible to address all human rights issues an activity is infringing on.[6]


3. What does do no significant harm (DNSH) mean?

Article 2(17) of the EU Regulation 2019/2088 on sustainability-related disclosures in the financial services sector describes what sustainable investment means. It also includes the expression do no significant harm (DNSH), which is interpreted as a precautionary principle by Regulation 2019/2088. The DNSH principle seeks to ensure that in order for an economic activity to be included in a taxonomy-aligned financial product it needs to meet two conditions: (i) it contributes to the achievement of an environmental objective pursued by the EU Sustainability Taxonomy (e.g. climate change adaptation); and (ii) it does not hamper the fulfillment of the minimum safeguards for human rights and other environmental objectives pursued by the EU Sustainability Taxonomy (e.g. transition to a circular economy).

From a perspective that puts minimum safeguards of human rights at its center, it is important to recall the definition of do no harm according to the UN Framework on Business and Human Rights. In that document, which laid down the foundations of the UNGPs, do no harm is defined as “not merely a passive responsibility for firms but may entail positive steps – for example, a workplace anti-discrimination policy might require the company to adopt specific recruitment and training programmes.”[7]



[1] EU Technical Expert Group on Sustainable Finance: Final Report on the Taxonomy (March 2020) p. 8.

[2] EU: Proposal for a Regulation on the establishment of a framework to facilitate sustainable investment: Approval of the final compromise text – Interinstitutional File 2018/0178 (COD) Doc. 14970/019 ADD 1 (December 2019).

[3] UN Guiding Principles on Business and Human Rights, Principle 11.

[4] UN Guiding Principles on Business and Human Rights, Principle 11, Commentary.

[5] UN Guiding Principles on Business and Human Rights, Principle 15.

[6] OECD General Due Diligence Guidance, page 42.

[7] Protect, Respect and Remedy: A Framework for Business and Human Rights para. 55

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