Sustainable finance taxonomy: key to supporting green investment and preventing climate change

This page is also available in

The European Economic and Social Committee (EESC) fully supports the Commission's recent measures aimed at setting standards for the definition of "sustainable economic activities", but points out that some elements may prove a complex and costly challenge, particularly for SMEs, and questions whether the current version of the Delegated Regulation is fit for purpose.

The EU needs efficient and urgent measures to reduce emissions and get to grips with climate change. To that end, the Sustainable Finance Package presented by the European Commission could establish a clear, coherent and comprehensive framework in which a greener economy can develop without lock-in effects.

In the opinion adopted at the September plenary session, drawn up by Stefan Back, the EESC says that it is important to clearly define technical criteria for the green investments that directly contribute to Europe's climate objectives and on which the practices of the business sectors concerned and the financial sector can be aligned. Setting standards that diverge from maximum requirements of EU legislation may create confusion, and the EESC therefore recommends strengthening those requirements.

The package of Commission measures is intended to enable investors to re-orient investments towards more sustainable technologies and businesses. We need efficient, easily applicable, innovative and productive tools that bring about rapid and readable results. The assessment of the Sustainable Finance Taxonomy Delegated Regulation should be carried out in this spirit, stressed Mr Back.

What is the EU taxonomy?

The EU taxonomy is a classification system listing environmentally sustainable economic activities and providing an exact definition of what can be considered as such.

It is meant to increase sustainable investment and help implement the European Green Deal, as it creates security for investors, protects private investors from "greenwashing", helps companies to work in a more climate-friendly way, reduces market fragmentation, and moves investment where needed.

The sustainable finance taxonomy will help define "sustainable economic activities"

Overall, the EESC welcomes the objective of setting a uniform EU standard defining activities that qualify as contributing substantially to climate change mitigation or adaptation.

The Delegated Regulation could create a fair and transparent level playing-field for green finance in the EU, improving transparency through clear criteria for sustainable investment and assisting potential investors, both preventing "greenwashing" and attracting investment in sustainable projects.

In addition, the EESC believes that economic activities and projects defined as "sustainable" must be commercially attractive to investors in the real economy, given the fact that investors will expect a sustainable project to be realistic, achievable, reasonably profitable, and predictable for market operators.

Implementing the EU taxonomy may be cumbersome

According to the EESC, the technical criteria should afford wider possibilities for recognising transitory solutions as green, which would enable a smoother transition. It is of the utmost importance to prevent lock-in effects.

Measures with a high level of ambition in terms of climate change mitigation may also prove a complex and costly challenge, particularly for SMEs, except possibly for a small number of very big operators. For this reason, the Committee warns against the risk of too high costs in implementing the taxonomy criteria.

Taking into account the concerns of operators in the real economy about the negative effects of the Delegated Regulation on financing possibilities and costs, the EESC emphasises that it is important for surveillance authorities to closely monitor developments. This is key in preventing distorting effects on financial markets, particularly in view of the widening scope of taxonomy criteria to include, for instance, non-financial reporting and the proposed EU Green Bond Standard.

Background – the "package"

The Sustainable Finance Package was published by the European Commission in April 2021 and consists of the Communication on an EU Taxonomy, Corporate Sustainability Reporting, Sustainability Preferences and Fiduciary Duties: Directing finance towards the European Green Deal; a Commission Delegated Regulation; a proposal for a new Corporate Sustainability Reporting Directive; and amended delegated acts under the Markets in Financial Instruments Directive (MiFiD II) and the Insurance Distribution Directive (IDD).

The objective of the measures is to facilitate investment in sustainable activities, which is essential to make Europe climate-neutral by 2050, so that the EU becomes a global leader in setting standards for sustainable finance.

See also