Commission readies implementation of sustainable finance

The implementation of the taxonomy will help to exclude polluting industries from mainstream finance, experts hoped. [Nneirda / Shutterstock]

The European Commission will detail in the coming weeks what could be considered a ‘green’ activity, a technical definition that would help to unlock the massive investment needed to achieve the EU’s climate objectives.

The EU reached an agreement on its ‘green’ taxonomy in December 2019. The landmark deal included the criteria to determine what activities could be considered as “sustainable”, an attractive label for investors across the globe.

The taxonomy was seen as a key instrument to mobilise the €350 billion of additional investment Europe needed annually to achieve the climate neutrality by 2050.

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But this methodology requires further work to become a useful tool for companies and investors, panellists agreed during a webinar organised by EURACTIV on 27 October.

As a first step, the European Commission will publish “very soon” delegated acts containing detailed technical screening criteria for determining when an economic activity can be labelled as “green”, said Andrea Beltramello, cabinet member of Valdis Dombrovskis, the Commission’s executive vice-president in charge of economy.

These delegated acts will guide companies towards what exactly makes their sectors green, and will help investors to assess their sustainability.

These screening criteria are an essential piece of the sustainable finance framework, given that the Taxonomy regulation did not provide an exhaustive list of ‘green activities’, but rather established four conditions they have to meet:

The activity must contribute substantially to one of the six environmental objectives set out in the regulation; it must not significantly harm any of the other five environmental objectives; it must be carried out in compliance with minimum safeguards, mainly in terms of fundamental labour rights; and it must comply with the mentioned technical screening criteria.

The coming delegated acts will cover the criteria of two of the six environmental objectives: climate change mitigation and climate adaptation. The rest will come next year. 

The remaining objectives are sustainable use and protection of water and marine resources; transition to a circular economy, waste prevention and recycling; pollution prevention and control; protection of healthy ecosystems.

The delegated acts will be open for a four-week public consultation and will be subject to the Parliament and Council’s approval. 

“We need to mobilise private investment, also with regulatory means”, stressed Beltramello, adding that the guidance provided by the taxonomy will help in this regard.

This taxonomy is a “living creature” that will evolve, he insisted.

One of the issues to look at is whether the taxonomy should help to define not only what activities are “green”, but also those that are “neutral” and “brown”.

Helena Viñes, deputy global head of sustainability at BNP Paribas Asset Management and a member of the EU taxonomy platform, said that the expert group will explore whether to expand the taxonomy to cover more activities and also social targets. 

She explained that the expert group did not develop a more comprehensive taxonomy initially because they needed to be pragmatic and focus on what was relevant.

“We didn’t have the luxury of time”, she explained during the webinar. 

Karl Haeusgen, president of Germany’s Mechanical Engineering Industry Association (VDMA), agreed with the sustainable finance targets and principles. 

But he said there is “some way to go for the details of the taxonomy itself, and define what is a sustainable technology or product through the value chain”.

One of the key elements to channel credit and investment away from polluting areas and toward clean technologies will be having reliable data.  

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Reporting on greenhouse gas emissions should become mandatory “as soon as possible” for companies with more than 250 employees, argues Michèle Lacroix, an EU expert who helped design the EU’s landmark green finance taxonomy.

Viñes explained that one of the problems today is the lack of standardised, reliable and comparable data from companies. She called for the development of  “a global understanding of some of the environmental metrics”, given that companies seeking investment and financial actors operate globally.

“Otherwise, it is going to be extremely difficult for financial institutions to do justice to the different companies,” she said.

Beltramello agreed that “better information” and more standardised data are needed to help investors find the right projects and put SMEs on the radar of financial actors.

Martin Hojsík (Renew Europe, Slovakia), who was the European Parliament’s shadow rapporteur on sustainable finance, agreed that “we need to have more standardised, indicator-based rules for environmental reporting”. 

But he warned that it would not be easy, given that companies are very different in terms of their size, their customer base or their portfolio. Finding the right framework “is going to be the big task”, he said.

Wolfgang Kuhn, director of financial sector strategies at ShareAction, recommended expanding the taxonomy also to ‘brown’ sectors, in order to get rid of polluting industries in mainstream finance. 

But he was wary of the “excuse” of having insufficient data to guide the policy action. “We cannot wait until we have all data, because we won’t have all the data for moving further”.

Europe urged to align budget with green finance rules

The EU’s sustainable finance taxonomy should be systematically applied to track green investments in the bloc’s next long-term budget and coronavirus recovery fund, which together amount to €1.8 trillion over the next seven years, according to a new report launched on Wednesday (28 October).

[Edited by Zoran Radosavljevic]

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