EU tweaks rules that determine which investments are green

Under the new rules, one of the environmental objectives that should be considered is climate change mitigation and adaptation

EU lawmakers have reached an agreement on new criteria to determine whether an economic activity is environmentally sustainable.

The “taxonomy regulation” aims to provide investors with clarity on which activities are considered environmentally and socially sustainable, contributing towards achieving the EU’s climate neutral goal by 2050.

Under the new rules, some of the environmental objectives that should be considered are: climate change mitigation and adaptation, sustainable use and protection of water and marine resources, transition to a circular economy including waste prevention and increasing the uptake of secondary raw materials, pollution prevention and control as well as protection and restoration of biodiversity and ecosystems.

An economic activity should contribute towards one or more of the above objectives and not significantly harm any of them.

Its environmental sustainability should be measured using a unified classification system, as national labels based on different criteria make it difficult for investors to compare green investment.

The new rules don’t preclude or blacklist any specific technologies or sectors from green activities, apart from solid fossil fuels, such as coal or lignite.

Gas and nuclear energy production are not explicitly excluded from the regulation – they can potentially be labelled as an enabling or transitional activity in full respect of the “do not significant harm” principle.

The new legislation should also protect investors from risks of ‘greenwashing’ as it makes it compulsory to provide a description of how the investment meets the environmental objectives.

Economic Affairs Committee rapporteur Bas Eickhout (Greens/EFA, NL) said: “All financial products which claim to be sustainable will have to prove it following strict and ambitious EU criteria. The compromise also includes a clear mandate for the Commission to start working on defining environmentally harmful activities at a later stage.

“Phasing out those activities and investments is indeed as important to achieve climate-neutrality as supporting decarbonised activities.”

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