New rules will put an end to greenwashing

MEPs adopted criteria for sustainable investments

Photo: EP Bas Eickhout.

A new legislation on sustainable investments, or so-called 'taxonomy', dedicated to make the financial sector more green-oriented, was backed by the MEPs on Thursday at the plenary session in Brussels. All financial products for which there is a claim that they contribute to environmental sustainability should be proved by disclosing the share of their investments into activities that are considered such.

The legislation specifies six environmental goals and allows economic activity to be labelled as environmentally sustainable if it contributes to at least one of the objectives without significantly harming any of the others.

Among them are climate change mitigation and adaptation, sustainable use and protection of water and marine resources. Important objectives are also 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.

MEPs highlighted that establishing clear European “green” criteria for investors is key to raising more public and private funding so that the EU can become carbon neutral by 2050 as set out in the European Green Deal as well as to prevent ‘greenwashing’.

According to the Commission estimates Europe needs around €260bn per year in extra investment to achieve its 2030 climate and energy targets. In a resolution from March this year, lawmakers called for investments under the Covid-19 recovery plan to be prioritised as part of the Green Deal.

Lead negotiator for the Environment Committee, Sirpa Pietikainen (EPP, FI) commented that 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, she said adding that greening the financial sector is a first step towards making investments serve the transition to a carbon-neutral economy.

Economic Affairs Committee rapporteur Bas Eickhout (Greens/EFA, NL) underlined that all financial products that claim to be sustainable will have to prove it following strict and ambitious EU criteria. He explained that the legislation also includes a clear mandate for the Commission to start defining environmentally harmful activities and phasing out those activities and investments is as important to achieving climate neutrality as supporting decarbonised activities.

The agreed legislation foresees activities that are incompatible with climate neutrality but considered necessary in the transition to a climate-neutral economy are labelled transition or enabling activities. Gas and nuclear energy could potentially be labelled as an enabling or transitional activity in full respect of the “do no significant harm” principle, while solid fossil fuels, such as coal or lignite, are excluded.

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