MEPs and the Finnish presidency of the EU Council have agreed on a taxonomy to determine what economic activities can be considered ‘green’, paving the way for billions of euros to be invested to fight climate change.
“A major success ahead of COP25 and for our Sustainable Finance Strategy,” European Commission vice-president for finance, Valdis Dombrovskis, tweeted.
The compromise was reached between the Finnish presidency and the European Parliament negotiating teams, after one and a half years of negotiations since the Commission made the original proposal.
The deal, which still needs to be confirmed by EU member states and the European Parliament, came as an “unexpected early Christmas present,” said green NGO Transport & Environment.
“The EU’s green standard will mean people can no longer be sold fake green investments. If we want to halt climate change we need money to be flowing towards good things such as electric mobility or hydrogen and not towards diesel, gas and dirty biofuels,” said Transport and Environment’s executive director William Todts.
The taxonomy plays a crucial role in Europe’s ‘Green Deal’, as it will help to attract billions of euros needed for the sustainable transition and to achieve carbon neutrality by 2050.
It is expected to be applied by promotional banks, including the European Investment Bank, Germany’s KfW and the European Central Bank.
For the European Commission, the taxonomy was “the most important and urgent action” of the Action Plan of Sustainable Finance put forward in March 2018.
In an interview with EURACTIV, the European Banking Authority chief, José Manuel Campa, stressed that the taxonomy was the first step needed before considering how to deal with ‘green’ loans and investments from a regulatory point of view.
The compromise extended the scope of the taxonomy to all kinds of investment, but also big companies. The extension of the taxonomy was one of the controversial issues, European sources told EURACTIV.
In order to improve the clarity of the taxonomy, it will add the categories of ‘transitioning’ activities – businesses that are not currently green – and ‘enabling’ activities (such as the production of steel for train tracks) to differentiate from the real ‘green’ ones.
Green MEP Sven Giegold said that the compromise represented a “milestone for sustainable financial markets”.
“The new rules will free up private investment in a green economy and make them cheaper,” while environmentally harmful investments will become “more expensive”, he explained.
Coal is explicitly excluded as a sustainable financial product. In regard to nuclear energy, one of the last hurdles of the negotiations, the environmental protection standards (do-no-harm principle) are so high that it would be de facto excluded, opined Giegold.
The European Parliament and a coalition of countries led by Germany, Austria, and Luxembourg were in favour of excluding nuclear, while France fought to maintain it.
An important part of the package is the governance structure. The agreement establishes an independent platform on sustainable finance that will develop and maintain the full taxonomy going forward. It will also monitor capital flows toward sustainable investment and will advise member states on economic transition.
The agreement comes after The UK’s Financial Conduct Authority (FCA) unveiled a string of new measures designed to prevent issuers from ‘greenwashing’.
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