latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/eu-taxonomy-to-provide-toolbox-for-green-investments-stop-greenwashing-52444820 content esgSubNav
In This List

EU taxonomy to provide 'toolbox' for green investments, stop greenwashing

Blog

Spotlight on sustainability: How banks can overcome the challenges of achieving net-zero emissions by 2050

Blog

Insight Weekly: US election scenarios; borrowing costs rise; commercial REIT fears

Podcast

Street Talk | Episode 100 - KBW CEO offers optimism for bears fearful of bank liquidity, credit

Blog

Insight Weekly: Stocks endure more pain; bank branch M&A slows; debt ratios fall


EU taxonomy to provide 'toolbox' for green investments, stop greenwashing

The European Commission's classification system for "green" investments published June 18 will act as "toolbox" for investors and companies to help them make sustainable investment decisions and prevent greenwashing, according to the EU commissioner in charge of the body's sustainable finance action plan.

Estimating that between €175 billion and €290 billion of private investment is needed to achieve a carbon-neutral economy by 2050, Valdis Dombrovskis, the Commission's vice president responsible for financial stability, financial services and capital markets union, said the taxonomy was essential for providing a common understanding of what assets actually were "green" or environmentally friendly.

The 414-page report covers 67 activities across eight sectors, including energy, transport, agriculture, manufacturing, technology and real estate. The taxonomy defines environmentally sustainable activities in each of those sectors, such as zero-emissions transport, but also looks at how traditional industries such as iron and steel are making the transition to a carbon-neutral economy.

Green bond standards

Dombrovskis said the publication of the report would stop "greenwashing," when companies make an investment sound more environmentally friendly than it is, as it would provide a clear definition of what was green and what kind of economic and sector activities qualify under the taxonomy.

"We are not talking about only renewables and so on," he told reporters in Brussels. For example, the economy still needs steel, but it must be used in a more environmentally friendly way.

The report is one of three published June 18 as the Commission seeks to step up its climate-focused agenda under its sustainable finance action plan launched in 2018.

The Commission also made public a report on green bond standards, which will be linked to the taxonomy. Dombrovskis said the standards will determine which climate-friendly and environmentally friendly activities should be eligible for funding with an EU green bond, something that should boost the green bond market. The third report on climate benchmarks sets out methodologies for developing low-carbon benchmarks or benchmarks aligned with the Paris agreement on climate change, which aims to limit global warming ideally to 1.5 degrees Celsius above pre-industrial levels, and to 2 degrees Celsius more at the most.

TCFD recommendations

As part of the Commission's sustainable finance action plan, the reports aim to help guide financing away from polluting industries to more sustainable ones, Dombrovskis said.

"The goal of the sustainable finance action plan is to steer the investment toward green and sustainable investment activities, but it doesn't mean that we prohibit other activities. Investment in coal is still not prohibited — we would not recommend it under our sustainable finance [plan], but it is still there."

The Commission also published its guidelines on reporting climate-related information, and Dombrovskis said it had integrated the recommendations of the G-20's voluntary disclosure framework from the Task Force on Climate-related Financial Disclosures.

The move would ensure "greater global convergence of climate reporting," he said.

The reports will form the basis of consultations in the coming months and will not come into force before the new European Parliament sits later in the year.