Next stage of EU taxonomy welcomed by industry

The agreement is subject to approval by the European Parliament and EU Council

Leading ESG figures have welcomed the EU’s long-awaited agreement on a taxonomy for green sustainable activities.

Last week EU negotiators, led by the European Parliament and the Finnish presidency of the EU Council, agreed on a provisional taxonomy deal to determine what economic activities can be considered green to help tackle climate change.

The agreement, which is still subject to approval by the European Parliament and EU Council, comes nearly two years after the European Commission first proposed the taxonomy.

The Principles for Responsible Investment (PRI) welcomed the deal, stating it would help push growth in the sector.

“The taxonomy is a classification system, underpinned by disclosure requirements, to bridge the gap between sustainability goals, like the Paris climate agreement, and investment practice. It is an absolute measure rather than a comparison and therefore represents a generational shift for responsible investment,” PRI chief executive officer Fiona Reynolds said.

“It will enable investors to determine the proportion of revenue from sustainable economic activities financed by the investment portfolio. The taxonomy will also support active ownership efforts: investors and companies can use the taxonomy to identify future growth opportunities,” Reynolds added.

The taxonomy, or ‘green list’, is a classification system to define sustainable economic activities – the first of its kind in the world.

The common green list is designed to channel billions of euros into green projects to help enable a climate neutral economy by 2050.

European Commission vice-president for finance, Valdis Dombrovskis said: “I am delighted that we were able to reach this compromise. This common understanding is fully in line with the increased ambition of the new Commission on financing the green transition.”

The agreement follows months of debate over how the taxonomy should be applied.

It’s believed the deal will require investors to abide by certain investor disclosure requirements, while the taxonomy will also strive to abolish greenwashing.

In addition, ‘transitioning’ activities – businesses that are not currently green – and ‘enabling’ activities, such as the production of steel for train tracks, will be differentiated from green activities to lessen confusion among investors and consumers.

 “The EU’s green standard will mean people can no longer be sold fake green investments,” William Todts, executive director at NGO Transport & Environment said.

“Once the regulation is agreed, we must ensure that the list of environmentally sustainable activities and their ‘thresholds’ are science based. We can’t have the gas and diesel lobbies rewrite the rules behind closed doors. T&E will work to make sure that is the case,” Todts added.