Companies working for the energy transition will be officially recognised as a green investment under the EU taxonomy
In order for investors to know which companies to invest in to contribute to the EU's carbon neutrality objectives, the Commission is developing a green taxonomy, thereby making it possible to certify the real players in the transition.
Investors are increasingly looking for investments that can impact climate change and the planet, while listed companies and fund managers are taking stock of that message as a way to attract funding.
The EU, aware of the role sustainable finance plays following the Paris climate change conference in 2015, has therefore initiated an action plan on the financing of sustainable growth to make it credible in the eyes of investors.
The first step is the elimination of "greenwashing”. To achieve this, the European Commission has launched the initiative to publish a taxonomy, a list of indicators standardised for the EU-27 to define what can fall under the category of green investments.
The goal is clear: it’s about providing investor confidence, who will now have the assurance of betting on players genuinely in favour of the environment. The EU is well aware of the importance of attracting the private sector as €180b per year will be needed between 2021 and 2027 in Europe for a successful low-carbon transition.
Six environmental goals
This new standardised classification will assess the sustainability of 70 economic activities which together emit 93% of the EU's CO2 emissions.
To be identified as "green" or "sustainable", an activity must contribute substantially to at least one of the six environmental objectives of the EU:
Mitigation of climate change;
Adaptation to climate change;
Sustainable use and protection of hydrological and marine resources;
Transition to a circular economy (including prevention and recycling of waste);
Prevention and reduction of pollution;
Protection and restoration of biodiversity and ecosystems.
Nor should it cause any prejudice to any of these objectives in the form of collateral damage. It must meet technical and specific review criteria, as well as minimum social and governance standards.
At the level of the first objective--climate change mitigation--the actors have been divided into three categories: those which already have a low level of emissions, those which allow other actors to be more respectful of the environment (solar panel manufacturing, energy efficiency consultancy, etc.), and those who still need to make efforts, but who are contributing to the transition to a low-carbon economy.
Climate as a priority
The entry into application of the taxonomy is scheduled for the beginning of the year 2022. But, initially, criteria were defined only for the first two objectives--those which relate to the fight for the climate, the number one priority in Europe. The other indicators will follow, in principle, a year later.
It will therefore be interesting to see whether this available and reliable information will quickly increase the amounts injected into sustainable projects, which currently represent only 1% of total investment in the EU.
This article was originally published in French on Paperjam.lu and has been translated and edited for Delano.