3.3 Structure of the ESG Taxonomy
The taxonomy has three pillars, Environmental, Social and Governance, and two dimensions, Impacts and Risks. The distinction between the impacts and risks of infrastructure companies follows from the notion of double materiality. From the perspective of an infrastructure company, the impacts are outward-facing i.e. they are a result of its activities, processes, operations and policies. Such impacts can be both positive and negative. By contrast, risks are inward facing i.e. they look to assess how external actors within the boundaries of the pillars can negatively influence the company’s operations.
Within the pillars, the E and S pillars of the taxonomy comprise superclasses on which the operations/activities of a company have an impact or from which they face a risk. Following the classification theory, these superclasses collectively identify all the actors (who/what) that are impacted by, or pose a risk to, the infrastructure company within each pillar. For example, the social pillar has four superclasses: the general public, customers, employees, and regulators. This means an infrastructure company can have a social impact on, or face a social risk from, any of these. The next level of classes collectively identifies the individual categories within each superclass that are relevant from an E or S perspective for infrastructure companies. For example, within the superclass E1: Nature, infrastructure companies can positively or negatively impact the classes of EI 1.1 Biodiversity, EI 1.2 Oceans and Freshwater, EI 1.3 Land and EI 1.4 Atmosphere.
At the final level of the taxonomy, the sub-classes identify the actual impacts and risks on/from any given class. For instance, an infrastructure company can impact the class of biodiversity (EI 1.1) in many ways. It could cause a 1.1.1 loss in biodiversity (cutting down trees for a greenfield project leads to habitat loss and subsequent loss of dependent species). Or it could cause an EI 1.1.2 impact - disturbing the biodiversity (noise associated with landing and take-off near airports can cause stress to local biodiversity and even affect their physiology). In contrast, it might also be responsible for an EI 1.1.3 event, restoring biodiversity of degraded ecosystems (for example, by carrying out programs to plant native trees along the sides of roads), or EI 1.1.4, conserving biodiversity by ensuring that the negative impacts are mitigated at source (such as the building of wildlife crossings to connect the habitat on two sides of a busy road). It could even result in EI 1.1.5, enhancing or improving the biodiversity of a region (e.g. building of wildlife crossings to connect the habitat on two sides of a busy road).
In summary, the taxonomy classes for the environmental and social pillars have the following hierarchy:
Level 1: Superclasses. These are the actors (who/what) that have an impact on, or pose a risk to, the infrastructure company.
Level 2: Classes. These are the individual categories of a superclass relevant from an environmental and social perspective. These can be understood as the different themes of impacts and risks of infrastructure companies within any given superclass.
Level 3: Sub-classes. These are the actual impacts that an infrastructure company has on the parent class or the actual risks that the infrastructure company faces from the parent class.