Stockholm (NordSIP) – On Thursday, June 18th, the European Parliament concluded the legislative process on the criteria for sustainable investments, also known as the EU’s Taxonomy on green investments. The adoption of the new law follows a similar vote from the other legislative branch of the EU, the European Council, which approved the legislation at the end of April.
“The taxonomy for sustainable investment is probably the most important development for finance since accounting. It will be a game-changer in the fight against climate change”, said lead negotiator for the Environment Committee, Sirpa Pietikainen (EPP, FI). “Greening the financial sector is a first step towards making investments serve the transition to a carbon-neutral economy”, she added.
The framework targets on six goals: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, and protection and restoration of biodiversity and ecosystems. To be classified as environmentally sustainable, an activity must contribute significantly to at least one of the goals, while it must not materially harm any of the other goals.
“All financial products that claim to be sustainable will have to prove it following strict and ambitious EU criteria,” commented Economic Affairs Committee rapporteur Bas Eickhout (Greens/EFA, NL). “The legislation also includes a clear mandate for the Commission to start defining environmentally harmful activities. Phasing out those activities and investments is as important to achieving climate neutrality as supporting decarbonised activities.”
“The purpose of the taxonomy, within the framework of the financial market, is to help financial players and investors make informed investment decisions based on the clarifications of the framework,” explains Robert Vicsai, board member of Swesif, Sweden’s Sustainable Investments Forum. “The taxonomy is also expected to form the basis for future standards and labels for sustainable financial products,” he continues.
According to the announcement by the European Parliament, activities that are incompatible with climate neutrality but considered necessary in the transition to a climate-neutral economy are labelled transition or enabling activities. They must have greenhouse gas emissions levels corresponding to the best performance in the sector. Solid fossil fuels, such as coal or lignite, are excluded, but gas and nuclear energy could potentially be labelled as an enabling or transitional activity in full respect of the “do no significant harm” principle.
The law enters into force after publication in the Official Journal. The Commission will regularly update the technical screening criteria for transition and enabling activities. It should review them and define criteria to identify activities that have a significant negative impact by December 31st, 2021.