While the Luxembourg-based court pointed out that the European Commission has rightly focused on increasing transparency it called for more consistent action regarding the rules and regulations governing sustainable investing.
“The EU’s actions on sustainable finance will not be fully effective unless additional measures are taken to price in the environmental and social costs of unsustainable activities,” said Eva Lindström, the member of the European Court of Auditors responsible for the report. “Unsustainable business is still too profitable. The Commission has done a lot to make this unsustainability transparent, but this underlying problem still needs to be addressed.”
One of the main issues according to the report is classification. The auditors concluded that there is a lack of clarity on what is sustainable. The commission’s 2018 sustainable finance action plan addressed these issues only partially, the ECA said. The report highlighted the need to complete the common classification system for sustainable activities based on scientific criteria.
The decision on whether to include gas and nuclear energy in the rules will be taken later this year. There have been concerns regarding the two energy sources being classed as sustainable, with members states including Luxembourg, lobbying against the move.
The ECA report pointed out the important role in sustainable finance played by the European Investment Bank (EIB), also based in Luxembourg. The auditors found that support provided by the European Fund for Strategic Investments, managed by the EIB, did not focus on central and eastern Europe where sustainable investment is most needed. It also spent only a small amount on adaptation to climate change, the report said.
One of the recommendations by the ECA is for the commission to develop a sustainable project pipeline in cooperation with member states. The auditors also advocated that the “do no significant harm” principle should be applied consistently across the EU budget.
The audit report will be taken into account in the implementation of the 2021 Strategy for Financing the Transition to a Sustainable Economy.