Posted inESG

EU formally adopts ‘green’ investment roadmap

Euro symbol in front of European Central Bank, Frankfurt, Germany

The EU’s Parliament has adopted a classification system, which includes “green” criteria to avoid greenwashing and serves as a roadmap for the EU’s climate-neutral transition.

It follows the political agreement, which was concluded in December 2019.

The taxonomy is a “game changer”, said Helena Vines Fiestas, global head of stewardship and policy at BNP Paribas Asset Management and member of the EU’s Technical Expert Group (Teg) on Sustainable Finance, which advised the Commission on the taxonomy.

She explained to Expert Investor that it is “consistent with European environmental goals and policy” and also allows “the financial sector to directly contribute to the financing of Europe’s transition”.

The taxonomy labels an economic activity as environmentally sustainable if it substantially contributes to at least one of six environmental objectives without significantly harming any of the others, and complies with minimum social safeguards.

Valdis Dombrovskis, executive vice-president at the Commission with responsibility for financial stability, financial services and capital markets union, said: “The adoption of the taxonomy regulation today marks a milestone in our green agenda. It creates the world’s first ever classification system of environmentally sustainable economic activities, which will give a real boost to sustainable investments.”

Bas Eickhout, MEP, Greens/European Free Alliance and rapporteur on the file, commented: “All financial products that claim to be sustainable will have to prove it following strict and ambitious EU criteria.”

Arman Teimouri, MEP at the Swedish Liberal Party, welcomed the adoption of the taxonomy, while also pointing to a weakness. He told Expert Investor that the carbon dioxide emission thresholds for new power plants are too high but can still be lowered.

“This means there is no incentive to push the average to the range where it has to be for Europe to reach its climate goals. It is obvious that plants emitting that much are not contributing strongly to the climate goals.

“Since the power sector is such an important emitter of carbon, these limits – which appear in the annex of the technical report – represent a fundamental flaw, which, if they are agreed upon, are likely to lead to Europe missing its climate goals. We urge the commission to lower the limits,” he said.

Transition and enabling activities

The final taxonomy also includes activities that are incompatible with climate neutrality but considered necessary in the transition to a climate-neutral economy.

These are labeled ‘transitional’ or ‘enabling’ activities.

Opinions among different stakeholders have differed on which activities should be included in these categories.

The WWF commented in a statement: “The industry has been pushing to include nuclear in the ‘sustainable’ category. In addition, gas lobbies are actively pressuring the Commission to weaken the gas criteria proposed by the Teg. It is essential that the EU Commission shuts the door on nuclear and fossil fuel energy for good or the credibility of the taxonomy will be at stake.”

Next steps

The Commission will regularly update the technical screening criteria for transition and enabling activities.

By 31 December 2021, it will conduct a review, which will include economic activities that significantly harm environmental sustainability.

Eickhout commented: “The legislation also includes a clear mandate for the Commission to start defining environmentally harmful activities.

“Phasing out those [harmful] activities and investments is as important to achieving climate neutrality as supporting decarbonised activities”.

The Commission will set up a Platform on Sustainable Finance to develop the technical criteria for further environmental objectives of the taxonomy, the EU said.

On 18 June, it launched a call for applications for members of the Platform on Sustainable Finance, which will be composed of experts from the private and public sectors.

The regulation will enter into force 20 days after its publication.

Elena Johansson

Senior Reporter

Part of the Bonhill Group.