European Council notified that EU ambassadors agreed with the position of the Council on a proposal to create an EU-wide classification system, or taxonomy, to provide businesses and investors with a common language to identify what economic activities can be considered environmentally sustainable. At present, there is no common classification system at EU or global level to define an environmentally sustainable economic activity. The proposed regulation is meant to reduce fragmentation resulting from market-based initiatives and national practices and to reduce the practice of marketing financial products as green or sustainable, when in fact they do not meet basic environmental standards. According to the Council position, the taxonomy should be established by the end of 2021, to ensure its full application by end of 2022.
As set out in the European Council position, the proposal identifies and defines six EU environmental objectives—climate change mitigation; climate change adaptation; sustainable use and protection of water and marine resources; transition to a circular economy, including waste prevention and recycling; pollution prevention and control; and protection and restoration of biodiversity and ecosystems. To qualify as environmentally sustainable, economic activities would have to fulfill the following requirements:
- Contribute substantively to at least one of the six environmental objectives
- Not significantly harm any of the environmental objectives
- Be carried out in compliance with minimum social and governance safeguards
- Comply with specific technical screening criteria
EC would then be tasked to establish the actual classification by defining technical screening criteria for each relevant environmental objective. Legally, the criteria would take the form of delegated acts regarding the sector classification of economic activities. They would be supplemented by the implementing acts defining quantitative and qualitative thresholds that must be met by an economic activity that is to be considered environmentally sustainable. EC would be assisted by a technical expert group, "Platform on sustainable finance," which would be mandated to provide advice for developing the technical screening criteria and analyze their impact in terms of potential costs and benefits of their application. In addition, EC will be advised by an expert group consisting of experts from member states on the appropriateness of the technical screening criteria. The European Parliament voted on its position in March 2019. Negotiations between the Council and the Parliament are, therefore, ready to start.
Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, Taxonomy, ESG, Climate Change Risk, European Parliament, European Council
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