Thursday, 22 April 2021
Yesterday (21 April 2021), the European Commission (EC) adopted its ambitious and comprehensive package of measures to mobilize investments towards sustainable activities to ensure that the EU reaches its 2050 decarbonisation goals and becomes a global leader in setting standards for sustainable finance.
The package is comprised of three integral parts:
The taxonomy which is an EU-wide classification system for environmentally sustainable economic activities will lay the foundation for sustainable investment by clarifying which economic activities contribute the most to meeting the EU's environmental objectives.
A unified taxonomy will assist in furthering climate-friendly investments allow investors, including individuals, to invest their money in line with their sustainability preferences. It will make it possible to determine which investments, such as loans, stocks, and bonds, are really environmentally sustainable, limiting the risk of greenwashing.
Additionally, it will introduce disclosure obligations on companies and financial market participants. The Act will cover the economic activities of roughly 40% of listed companies in sectors (e.g. energy, forestry, transportation, etc) responsible for almost 80% of direct GHG emissions in Europe.
Yesterday, the College of Commissioners reached a political agreement on the text. The Delegated Act will be formally adopted at the end of May once translations are available.
The aim of this proposal is to simplify and improve the flow of sustainable information in the corporate world, making sustainability reporting by corporations more consistent so that investors and the public have a comprehensive awareness of corporate sustainability activities.
This Directive will set about an EU sustainability reporting requirement that will extend to all large companies and all listed companies which makes up about 50 000 companies that will now need to follow these rules. This is a vast increase from the 11 000 companies that are subject to the existing requirements.
The EC has proposed the development of a standard for SMEs, which non-listed SMEs can use voluntarily.
On fiduciary duties, investment and insurance advice to ensure that financial firms like advisers, asset managers, or insurers include sustainability in their procedures and investment advice to clients.
These six Acts aim to encourage the financial system to support the pathway to sustainability while also supporting existing sustainable businesses.
Mairead McGuinness, Commissioner responsible for financial services, financial stability, and the Capital Markets Union said "The financial system plays a crucial role in the delivery of the EU Green Deal, and significant investments are required to green our economy. We need all companies to play their part, both those already advanced in greening their activities and those who need to do more to achieve sustainability. Today's new rules are a game-changer in finance. We are stepping up our sustainable finance ambition to help make Europe the first climate-neutral continent by 2050. Now is the time to put words into action and invest in a sustainable way."
While the EC supported by the Technical Expert Group on Sustainable Finance (TEG) and later the Platform on Sustainable Finance had successfully achieved a scientific and evidence-based approach for some economic criteria in the EU taxonomy, critics argue that the final proposed Delegated Act goes against this approach for activities related to bioenergy and forestry with critics arguing carbon-intensive member states held too much sway.
“The forestry and bioenergy outcome is disappointing, after a concerted effort and more ambitious recommendations from diverse experts to follow a comprehensive scientific evidence-based mandate,” said Sandrine Dixson-Declève, Co-President of the Club of Rome and a member of EIT Climate KIC’s Advisory Council and the Platform on Sustainable Finance.
The European Commission additionally announced yesterday a provisional agreement between co-legislators on the new European Climate Law effectively turning the EU Green Deal targets into legal obligations. The Law enshrines the EU's commitment to reaching climate neutrality by 2050 and the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030 compared to 1990 levels.