Taxonomies of "sustainable development" and "green" projects as legal instruments for achieving sustainable development goals and "green legislation"

Maslova Svetlana Valentinovna Doctor of Law Associate Professor, Department of Public Administration, St. Petersburg State University 199004, Russia, Saint Petersburg region, Saint Petersburg, lane. Volkhovsky, 3, of. 223 maslova@gsom.pu.ru Other publications by this author

The concept of sustainable development has been embodied in the UN Sustainable Development Goals (hereinafter – SDGs), as well as in the criteria of social and environmental sustainability, corporate governance (hereinafter – ESG criteria), gets practical outlines in the projects of "sustainable development", "green" and "climate" projects. The number of such projects and the volume of investments in them are growing rapidly, even despite such a deterrent as the lack of a uniform understanding of the categorization of these projects. This is largely due to the growing demand for streamlining approaches to projects that meet the Sustainable Development Goals, the green and climate agenda, and criteria that give a clear answer as to what is a qualified investment for projects to receive the appropriate status.

For a long time, the absence of precisely the normative tools for the qualification of "sustainable development", "green" and "climate" projects has been considered one of the main barriers hindering the development of the Russian market of "sustainable" and "green" financing. These gaps were partially filled by the adoption of the Decree of the Government of the Russian Federation dated 07/14/2021 No. 1912-r "On Approval of the goals and main directions of sustainable (including green) development of the Russian Federation" (hereinafter – the Order on directions of sustainable Development) and the Decree of the Government of the Russian Federation dated 09/21/2021 No. 1587 "On approval of criteria for sustainable development projects (including green) development in the Russian Federation and requirements for the verification system of sustainable (including green) development projects in the Russian Federation" (hereinafter also referred to as the Resolution on the criteria of "Green" Projects, Russian Taxonomy).

Similar taxonomies operate in many countries of the world and, as is commonly believed, have become a driver of green and sustainable financing. Their practical significance is due to the real needs of the investment and financial sectors to redirect their investments and financial flows to the sectors of the economy that are of the highest priority for states due to their social and environmental significance for the population. Far from denying the influence of well-structured and clear taxonomies on the development of the market for such financing, nevertheless, we consider it unreasonable to consider them in isolation from the ongoing transformation of legal regulation within the framework of the international legal system and in acts of domestic legislation. Moreover, not only environmental legislation, in particular, the Environmental Code of the Republic of Kazakhstan (hereinafter referred to as the Environmental Code of Kazakhstan), legitimizing the concepts of "green" investments, "green" financing, "green" bonds, "green" projects and their classification (taxonomy) ^[18], but civil legislation, in particular, Civil The Code of the People's Republic of China, which established the norm that when conducting civil activities, civil law persons should act in such a way as to contribute to the conservation of resources and environmental protection ^[3].

In the academic environment, new approaches to legal regulation with a focus on achieving sustainable development are causing a lively discussion. The conclusions are drawn that "sustainable development" has put a new "genre" of tasks related to the protection of human rights and the environment before private law ^[17], the prospects for the transformation of contract law into "contract law adjusted from the point of view of sustainable development" are considered, which means contract law in which the achievement of sustainable development goals it is considered as one of the usual tasks of contract law. It is predicted that if the course towards the introduction of ESG standards at the international and national levels continues, it will lead to a reformatting of the legal space in many areas ^[13]. Opinions are expressed that the concept of sustainable development and ESG transformation should form the basis of legislation ^[8]. More radical hypotheses are also put forward about the formation of new branches of law, in particular, "green" law ^[7] or "sustainable development law" ^[6]. According to M.V. Mazhorina, "the law of sustainable development is irreducible to environmental, climate, international law, it incorporates the principles and individual institutions of civil, investment, financial, banking, labor, corporate, private international law and other branches" ^[6]. Proposals on the formation of the right to sustainable development seem, in our opinion, premature and do not have sufficient grounds. Despite the fact that many branches of Russian legislation really lack provisions on ensuring sustainable development and implementing the "green" agenda, a more justified task is not the formation of special branches of law, but focusing goal-setting in legal regulation on achieving the SDGs and national development goals. It is worth agreeing that "such a burden is beyond the power of environmental law alone, but requires the efforts of the entire legal system of the Russian Federation. In the context of the Concept of Sustainable Development, it is necessary to systematically rethink all the legislation of the Russian Federation" ^[10].

However, the interpretation of the goals and expected regulatory impact of the Decree on the Directions of Sustainable Development and the Russian Taxonomy, which, although presented as legal instruments for ensuring sustainable development, forces us to state that these acts contain regulation of only one of its elements of sustainable development and the SDGs – environmental (“environmental”), ignoring social (“social”) and economic (“economic") elements of sustainable development. In these conditions, presumably, we can talk about the next stage of greening legislation (“greening the legislation”), that is, the inclusion of environmental requirements in legislative and other legal acts of civil, administrative, agrarian and other legislation ^[12], in cases where public relations regulated in other branches of legislation affect public environmental needs and interests, that is, environmental relations, intersect with them in a certain segment, in order to use the means of other, "non-ecological" branches of legislation to solve environmental protection problems ^[2].

In the light of the above, new normative acts introduced into the legal system as regulatory instruments for ensuring sustainable development and the green agenda – taxonomies of "sustainable development" and "green" projects - deserve special legal evaluation. Definitions given in scientific and analytical materials reveal the concept of taxonomies in the light of the development of the green economy and financing of sustainable development as "classification systems that establish requirements for investors in terms of ensuring the environmental efficiency of projects and economic activities, as well as the preparation and dissemination of non-financial reporting" ^[9], "a set of criteria that serve as the basis for assessment of whether a financial asset will support the goals of sustainable development and to what extent" ^[15], "a factor in the formation of a system of "sustainable" financial instruments"; "classification of areas and objects of investment (technologies, sectors, etc.) that are considered "green" ^[8], "systems of principles and classification, laying the foundation for investment management in activities classified as environmentally friendly" ^[16].

This understanding of the "taxonomy" largely gives an idea of its functional purpose as a tool for "identifying the part of the economy that is responsible for the production of goods and services focused on environmental protection", "directing capital flows into projects aimed at solving environmental problems and ensuring sustainable development", "mitigating the consequences" of greenwashing"("greenwashing"), but not ESG risk management" ^[15].

When assessing the Russian taxonomy, the emphasis is on its methodological function. It is noted that despite its non–mandatory nature, the recognition of a financial project as "green" or "adaptive" is a kind of marking that will be used by companies to attract a certain class of investors, demonstrate interest in using high environmental standards and, potentially, to receive state support in the field of ecology and climate ^[11]. The adoption of the Russian Taxonomy is characterized as part of a consistent effort to introduce a culture of sustainable financing both to attract extra-budgetary funds and to provide budgetary co-financing. And although compliance with the criteria does not provide and (or) does not justify the provision of state support, it points to the main priorities in terms of industries classified as areas of sustainable development ^[4]. The critical importance of taxonomies is emphasized in the light of the fact that investment ESG strategies of both corporate and individual investors depend on them ^[1].

In our opinion, taxonomy (or taxonomic classification based on certain criteria) is essentially a classification tool designed to identify objects and (or) projects, spheres and (or) types of activities in a certain subject area, with the aim of their subsequent placement under a special legal or economic regime established by the state to achieve certain goals of public administration, in the case under study – to achieve the SDGs and the goals of the Paris Agreement, the "green" and "climate" agenda, etc.

At the same time, it would be rash to reduce its purpose only to the investment tools of investors and financial institutions that help them reorient their investments and financial products into projects that contribute to the achievement of the SDGs and the goals of the Paris Agreement, the "green" and "climate" agenda. The broader role of taxonomies is seen as normative tools that create a conceptual and categorical apparatus for the subsequent regulation of relations regarding the achievement of the SDGs and national development goals, normatively fixing new economic and legal categories in this area. The construction of a taxonomy as a set of criteria allows avoiding "closed", "exhaustive" lists of "sustainable development" or "green" projects, as well as areas in which, according to the legislator, they can be implemented. We believe that the regulatory impact of taxonomy can be fully manifested in the systemic regulation of "sustainable development" or "green" projects, the introduction of specific measures of state support and measures of economic stimulation of "sustainable development" or "green" projects.

The country review shows the diversity of taxonomies in terms of their content and the management and regulatory tasks they solve. At the present stage, the most common are the so-called "green" taxonomies, which focus exclusively on the ecological segment of sustainable development.  For example, the Russian taxonomy does not cover all seventeen SDGs, but only nine of them directly related to achieving a positive effect on the environment – the SDGs 6, 7, 8, 9, 11, 12, 13, 14, 15.

One of the first national taxonomy of "green" projects is the Taxonomy of the People's Republic of China, adopted in order to implement a Comprehensive reform plan to promote environmental progress and meet the requirements of building a system of "green" finance in the People's Republic of China, as well as further regulation of the domestic market of "green" bonds, the comprehensive use of "green" financing in facilitating the acceleration of the construction of ecological civilization, promoting sustainable economic development in China. According to the Taxonomy of the People's Republic of China, "green" bonds refer to market securities that use the funds raised specifically to support "green" industry, "green" projects or activities in the field of "green" economy. The Taxonomy of the People's Republic of China includes financing, operations and risk management for projects in such areas as: environmental protection, energy conservation, clean energy, eco-friendly transport with zero emissions, "green" buildings. The taxonomy of the PRC is legally binding and is subject to application by all issuers of green bonds, including all financial institutions, corporations and state-owned enterprises, third-party valuation agencies and regulatory authorities.

Classification (taxonomy) of "green" projects to be financed through "green" bonds and "green" loans was approved by the Decree of the Government of the Republic of Kazakhstan dated 31.12.2021 No. 996 (hereinafter – the Taxonomy of the Republic of Kazakhstan) and is a system of classification of categories of "green" projects (including quantitative and qualitative thresholds) aimed at improving efficiency the use of existing natural resources, reducing the level of negative impact on the environment, improving energy efficiency, energy conservation, mitigation of climate change and adaptation to climate change. It contains 7 categories, 26 sectors and 58 subsectors, with a detailed explanation and indication of the threshold criteria for classifying projects as "green". The categories of the Taxonomy of the Republic of Kazakhstan include: renewable energy, energy efficiency, green buildings, pollution prevention and control, sustainable use of water and waste, sustainable agriculture, land use, biodiversity conservation and eco-tourism, clean transport. The most important feature of the Taxonomy of the Republic of Kazakhstan is the existence of the legislative basis for its application, enshrined directly in the Environmental Code of Kazakhstan. According to paragraph 4 of Article 126 of the Environmental Code of Kazakhstan, one of the mechanisms of economic regulation of environmental protection is the economic stimulation of activities aimed at environmental protection. According to article 130 of the Environmental Code of Kazakhstan, economic stimulation of activities aimed at environmental protection is carried out through a number of mechanisms, including assistance in attracting "green" investments, as well as the provision of state support measures within the framework of "green" financing. The Environmental Code of Kazakhstan has legislatively introduced and fixed a special categorical apparatus regulating the concepts of "green" technologies, "green" investments, "green" financing, "green" bonds, "green" loans, "green" projects, etc. The Environmental Code of Kazakhstan refers to "green" projects defined on the basis of the approved classification (taxonomy) projects aimed at improving the efficiency of the use of existing natural resources, reducing the level of negative impact on the environment, improving energy efficiency, energy conservation, mitigation of climate change and adaptation to climate change. The classification of "green" projects to be financed through "green" bonds and "green" loans is developed by the authorized body in the field of environmental protection and approved by the Government of the Republic of Kazakhstan.

The Decree on the directions of sustainable development in order to develop investment activities and attract extra-budgetary funds to projects aimed at implementing the national development goals of the Russian Federation in the field of green financing and sustainable development approved the goals and main directions of sustainable (including green) development of the Russian Federation, which include: waste management; energy; construction; industry; transport and industrial machinery; water supply and sanitation; natural landscapes, rivers, reservoirs and biodiversity; agriculture; sustainable infrastructure.

According to the requirements for the verification system of sustainable development financing instruments in the Russian Federation, the concept of "sustainable development projects" covers green projects or adaptation projects. In turn, a green project is understood as a project that simultaneously meets the following principles: (1) compliance with one or more of the main directions provided for in the Order on the main directions of Sustainable Development; (2) focus on achieving the goals of the Paris Agreement, or one or more of the SDGs specified in the 2030 Agenda, namely, SDG 6, 7, 8, 9, 11, 12, 13, 14, 15; (3) the implementation of the project contributes to the achievement of goals related to a positive impact on the environment, namely, preservation, protection or improvement of the environment; reduction of emissions and discharges of pollutants and (or) prevention of their environmental impact; reduction of greenhouse gas emissions; energy conservation and improvement of resource efficiency; (4) the implementation of the project contributes to the achievement of an environmental effect that is material, meets the requirements of the legislation of the Russian Federation in the field of environmental protection, is described in detail in the documents defining the conditions for the implementation of the green project; (5) compliance with the technological indicators of the best available technologies (if available); (6) no significant side effects on the environment (the principle of "Do No Significant Harm").

Taking into account the above, it seems that the Russian taxonomy has laid the regulatory foundation for the market of sustainable, including green financing in the Russian Federation, and has the potential to contribute to the expansion of its scale. Of course, through its adoption, the fundamental problem of ensuring sustainable development has not been solved in the legal field. Nevertheless, it introduced terminological (conceptual) certainty, reduced the asymmetry of the goals and objectives of legal regulation of investment and environmental relations, which is also an extremely important task of legal regulation. In the absence of clear goal-setting and normative definitions, new legal and economic categories are given different meanings and meanings, which negatively affects the emerging regulation of this sphere of relations. Future tasks related to the development of optimal legal structures for regulating relations arising from the preparation and implementation of projects of "sustainable" development and "green" projects will be solved more effectively, largely due to the foundations laid by the Russian taxonomy.