Introduction
The EU Taxonomy is an essential regulatory tool designed to help the European Union meet its climate and sustainability goals by establishing clear criteria for sustainable economic activities. While much of the focus has been on its environmental objectives, a crucial aspect often given less rigorous attention is the EU Taxonomy’s “Minimum Safeguards”. These safeguards serve as the baseline requirements that ensure companies meet high social and governance standards when engaging in sustainable activities. In this article, we delve into what the Minimum Safeguards entail, their role in the broader taxonomy framework, and why they are fundamental to achieving a just transition. For more context on the Taxonomy’s alignment and eligibility criteria, you may refer to our earlier blogs on an overview of what the EU Taxonomy Regulation entails, eligible vs. aligned economic activities, and the 3-step guide to taxonomy-aligned reporting]
Exploring the Minimum Safeguards
To classify an activity as environmentally sustainable, it is not enough to meet the environmental standards alone; adherence to specific social and governance criteria, referred to as Minimum Safeguards, is also mandatory. These safeguards are outlined in Articles 3 and 18 of the EU Taxonomy Regulation (EU TR), requiring companies to align with several globally recognized standards, including:
- The OECD Guidelines for Multinational Enterprises (OECD MNE Guidelines)
- The UN Guiding Principles on Business and Human Rights (UNGPs), including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work
- The International Bill of Human Rights
The Minimum Safeguards serve as crucial benchmarks that promote corporate responsibility in social and governance domains, working alongside the environmental objectives of the EU Taxonomy. By meeting these standards, companies ensure that their sustainability efforts go beyond reducing environmental impact to also include ethical practices, respect for human rights, and commitment to transparency in governance.
Core Areas of Focus
The Minimum Safeguards encompass several critical areas:
- Human rights, including workers’ rights
- Bribery/corruption
- Taxation
- Fair competition
These safeguards ensure that businesses aspiring for sustainability labels do not undermine their environmental contributions through unethical practices. They require companies to meet a range of social obligations, thus fostering a holistic approach that incorporates both ecological and ethical considerations in business operations.
Summary of Criteria for MS Alignment
EU companies in scope of CSRD should be considered non-compliant if one of the two criteria apply:
| Human Rights | 1. The company has not established an adequate human rights due diligence process as outlined in the UNGPs and OECD Guidelines for MNEs.
2. There are signals that the company did not adequately implement HRDD and/or did abuse HR. These are: a) The company has finally been found in breach of labour law or human rights. b) The following two indicators signal that the company does not engage with stakeholders although this is an integral part of the UNGPs. • An OECD National Contact Point has accepted a case, however the company refuses to engage with the party which has initiated it, or the company has been found non-compliant with the OECD guidelines by the NCP. • The Business and Human Rights Resource Centre (BHRRC) has taken up an allegation against the company, and the company has not answered to it within 3 months, only if these letters are less than 2 years old. |
| Corruption | 1.The company has no anti-corruption processes in place.
2. The company or its senior management, including the senior management of its subsidiaries, has finally been convicted in court on corruption. |
| Taxation | 1. The company does not treat tax governance and compliance as important elements of oversight, and there are no adequate tax risk management strategies and processes in place.
2. The company or its subsidiaries has been finally found violating of tax laws. |
| Fair Competition | 1. The company does not promote employee awareness of the importance of compliance with all applicable competition laws and regulations.
2. The company or its senior management, including the senior management of its subsidiaries, has been finally convicted on violating competition laws. |
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Conclusion
The EU Taxonomy’s Minimum Safeguards are more than just an additional layer of regulation; they are a critical element in the pursuit of a truly sustainable and equitable economic future. By setting the social and governance standards that companies must meet, these safeguards ensure that sustainability is approached in a holistic manner, encompassing not just environmental goals but also fundamental human rights and ethical business practices. As the EU continues to refine its sustainability framework, the Minimum Safeguards will remain a cornerstone, helping to shape a green transition that is fair, inclusive, and socially responsible.
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About NordESG
NordESG is an advisory firm helping corporates develop, articulate and execute their ESG and sustainability strategies. Our work includes sustainability performance reporting support under various ESG frameworks, strategy development or conducting materiality assessments. By doing so, we help businesses meet their disclosure compliance requirements like CSRD but also help them proactively communicate their strategy to other stakeholders like investors, customers and local communities in which they operate. Our work is focused mainly on Europe and North America.
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