The European Parliament this month approved new legislation that establishes clear “green” criteria for investors is critical to raising public and private funding so that the European Union can become carbon neutral by 2050 as set out in the European Green Deal.
The European Commission estimates that Europe requires approximately $290 Million USD per year in extra investment in order to achieve 2030 climate and energy targets. In addition, investment under the COVID-19 recovery plan has been prioritised as part of Europe’s Green Deal.
The new rules will determine whether an economic activity is environmentally sustainable if it contributes to at least one of the following objectives without significantly harming any of the others.
The objectives 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; and
- protection and restoration of biodiversity and ecosystems.
In a press release, lead negotiator for the Environment Committee, Sirpa Pietikainen said: “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. Greening the financial sector is a first step towards making investments serve the transition to a carbon-neutral economy.”
The rationale behind these changes is to ensure that all financial products that claim to be sustainable follow strict EU requirements.
The Committee has also defined “transitional” activities as those that are incompatible with climate neutrality but are considered necessary in the transition to a climate-neutral economy. These activities must have greenhouse gas emissions levels that do not exceed the best performance in the sector. In this category, solid fossil fuels, such as coal or lignite, are excluded, but gas and nuclear energy could be considered “transitional” activity in full respect of the “do no significant harm” principle.
The law enters into force after publication in the Official Journal and will be reviewed again at the end of 2021.