EU ambassadors have approved the Council’s position on creating a ‘green finance taxonomy‘.
The proposal would establish an EU-wide classification system to help investors identify which economic activities can be considered environmentally sustainable, in order to help fund the transition to a low carbon, resource-efficient economy.
There is currently no common classification system that does this on either an European or global level.
The proposed regulations would aim to “reduce fragmentation” between market-based initiatives and national policies and stop ‘greenwashing’, which is when financial products are marketed as “green” or “sustainable” when in reality they do not meet environmental standards.
In order to qualify as environmentally sustainable under the taxonomy, economic activities would have to contribute substantively to mitigating climate change, adapting to it, protecting water and marine resources, becoming more circular, limiting pollution or securing biodiversity.
They must also be carried out in compliance with minimum social and governance safeguards, comply with specific technical screening criteria and meet a range of quantitative and qualitative thresholds.
The EU Council suggests the taxonomy should be established by the end of 2021, in order for it to be applied by the end of 2022 – it is ready to enter into negotiations with parliament on the issue.
Mika Lintilä, Finland’s Minister of Finance, said: “Private sector participation is absolutely crucial in addressing the challenges posed by climate change.
“Hundreds of billions euros of investment are required to achieve the transition to a sustainable economy and it is clear the capital needed cannot come from public budgets alone. In order to help investors contribute to the transition, a first important step is to have a shared understanding of what “sustainable” means.”