The European Parliament and the European Council have agreed a classification system for sustainable economic activities, a move welcomed by co-operative banks across the continent.
The criteria are designed to help investors to determine to check their portfolios against the EU’s goal to become carbon neutral by 2050. In December, the European Commission announced its Green Deal, a package of measures for a sustainable green transition, and the new taxonomy is aligned with it.
The system sets out six environmental objectives: climate change mitigation, climate change adaptation, sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control and protection and restoration of biodiversity and ecosystems.
To qualify as sustainable, economic activities must provide a substantial contribution to at least one of these objectives; avoid significant harm to any of the other objectives; comply with robust and science-based technical screening criteria; and have in place social and governance safeguards.
The Commission’s executive vice-president for an economy that works for people, Valdis Dombrovskis, said: “This piece of legislation will be a game-changer in terms of tackling climate change, because it will enable billions in green investments to flow.
“Investors and industry will for the first time have a definition of what is ‘green’, which will give a real boost to sustainable investments. That will be crucial for the European Green Deal to become a reality. ”
The European Association of Co-operative Banks (EACB) issued a statement welcoming the taxonomy but said it had concerns about potential red tape for SMEs. It said its members would apply their knowledge and experience to make the taxonomy work in practice and help organisations complete the technical screening stage.
“Co-operative banks support the new dynamic approach with the inclusion of transition activities and different shades of green,” said Hervé Guider, EACB general manager. “However, they regret the fact that final negotiations have led to a rather complex and bureaucratic regime compared to the simple framework necessary to accelerate the shift to sustainability.
“The use of the new taxonomy, especially if indirectly applied to loans, seems to raise challenges for enterprises, especially SMEs, in terms of providing the necessary ESG data to their financing partners.”
EACB says the climate-related data of listed companies should become publicly available so bank and other financial institutions can differentiate between different shades of green, transition activities and enabling activities.
The taxonomy was compiled by an expert technical group of money managers, sustainable investment organisations and investors. The new rules are expected to take effect at the end of 2021.