What are the challenges of adopting the taxonomy of sustainable activities at EU level? Discover more in this article.
On April 21, 2021, the European Commission adopted a set of measures aimed at better directing capital flows towards sustainable activities throughout the European Union. By encouraging investors to finance more sustainable technologies and companies, the measures adopted must help Europe to achieve climate neutrality by 2050.
The taxonomy of sustainable activities proposed by the EU aims to promote sustainable investments by giving a clearer view of the economic activities that contribute the most to the achievement of the EU’s environmental objectives in 5 areas:
A new directive on the necessary disclosure of sustainability information by companies has been promulgated and extended to all large companies and all listed companies. As a result, almost 50,000 companies in the EU will now have to comply with detailed European standards for the publication of information on sustainability. With these new standards, issuers will have to explain more precisely why they need to raise funds, for what purposes and how. We can no longer simply say that it is to reduce CO2 emissions. It will have to be demonstrated, with precise figures and measurements in support.
Investors are encouraged to finance companies that can prove their social, environmental and governance performance (Environmental, Social and Governance / ESG) through the bond market: ESG Bonds.
Indeed, to have access to this privileged financing, companies will be forced to demonstrate the alignment of their activities with this taxonomy. In order to maintain their financing via the issuance of bonds on the primary market, companies will have to issue more and more bonds with ESG criteria. The bonds of those who do not, will not be subscribed or with much higher financing rates. To do this, companies will have to make strong commitments on ESG factors and therefore adopt models.
Extra-financial indicators (carbon, degree alignment, etc.) compete with financial indicators (sensitivity, agency ratings, etc.) to monitor the sustainability transition. Transition risk analysis has now become a considerable issue. The entire financial industry is therefore working on a tool box made of new rating models based on the ESG data of issuers on these themes. Fund managers, to meet their commitments, will be fond of ESG Bonds.
Financial regulation is also starting to get organized (Sustainability Finance Disclosure Regulation, Taxonomy) and market regulation bodies are getting involved in monitoring. For example, in 2022, one of the AMF’s supervisory themes aims to ensure compliance with the constraints and contractual commitments in terms of sustainable finance for asset managers.
New regulatory reports will be released on this subject, requiring the availability of ESG indicators for each line of assets present in the inventory of an investment fund, thus strengthening the regulatory reports that emerged with the Solvency II regulations.
First mentioned by Michael Grieves of the University of Michigan is according to the digital twin consortium.
“A digital twin is a virtual representation of real-world entities and processes, synchronized at a specified frequency and fidelity. »
Digital twins accelerate the holistic understanding of the system in its environment and optimal decision making.
By using real-time and historical data, they also make it possible to represent the past, the present and to simulate future states.
Are the approaches of simulable digital twins of industrial systems applicable to transition risk analysis?
A December 2021 article from a mining-related magazine quotes Jeff Hamilton, senior director brand strategy and alliances, Dassault Systems: “The virtual twin is incredibly important to digitalize all the variables, not just so you’re making the best economic decision but it is also the health, safety and environmental implications.”Ultimately, the “simulation” aspects become very important. For companies and financial markets, it is necessary to model projects and portfolios and to measure the associated carbon trajectories. Can the digital twin approach help?Access to data is key to building indicators, but not everything is standardized yet. There are currently two main sources:
However, digital twins are already emerging in the industry for all industrial assets such as production systems, infrastructures, factories and supply chains. These digital twins are used to anticipate, predict and make decisions, for example for operation and maintenance safety approaches, system resilience or even for production planning.
For example, with “Decarbonized City” the IRT SystemX has developed with the Paris-Saclay Community and Cosmo Tech a real virtual energy replica of the 27 municipalities that make up the territory of the Paris-Saclay agglomeration, built from real data provided by the agglomeration: configuration of the territory, cadastral data, buildings, energy networks, energy consumption and production data, etc. From the available data, we modeled the Paris-Saclay territory and simulated scenarios for optimal decision-making around future development projects and energy investments and to determine their ecological and economic consequences. By encapsulating both real-time and historical data and expert knowledge, simulable digital twins not only represent the past and present, but also simulate the possible futures of organizations.
The subject is also significant in the construction and energy renovation industry. For example, the European Probono project integrates a strategic analysis of the means of financing in accordance with the taxonomy and the use of digital twins to encourage the development of eco-districts.
It therefore seems legitimate to plan on the application of a digital twin approach for the analysis of transition risk with three research questions to be addressed very quickly:
The challenge of demonstrating the social and environmental performance of companies is an opportunity for sustainable growth in a sovereign Europe, if we master and develop tools and engineering as ambitious as the climate plan. Digital twins can be one of the levers of this new industrial revolution.
Innovation Emmanuel Arbaretier, an Innovation Project Manager at Airbus Protect, tells us how Artificial Intelligence can benefit businesses in the future. Will artificial intelligence be a reliable and safe technology in the future? AI is a very promising technology, but obviously it presents a lot of uncertainties in the way it will be designed, developed and […]
Read more