European Council Adopts Harmonized EU Taxonomy on Sustainable Finance
European Council adopted, at first reading, a regulation setting out an EU-wide taxonomy or classification system for environmentally sustainable activities. This regulation will be key to enabling the EU to become climate neutral by 2050 and to achieve the 2030 targets of the Paris agreement. These targets include a 40% cut in greenhouse gas emissions, for which EC estimates that EU has to fill an investment gap of about EUR 180 billion per year. The expectation is to establish the EU taxonomy for climate change mitigation and adaptation by the end of 2020.
The taxonomy is intended to provide businesses and investors with a common language to identify the economic activities that are considered environmentally sustainable. The future framework will be based on six EU 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
- Protection and restoration of biodiversity and ecosystems
As per the adopted regulation, the taxonomy for climate change mitigation and climate change adaptation should be established by the end of 2020 to ensure its full application by end of 2021. For the four other objectives, the taxonomy should be established by the end of 2021 for application by the end of 2022. The text of the regulation was adopted by written procedure, which means that the European Council has adopted its position at first reading. The regulation now needs to be adopted by the European Parliament at a second reading before it can be published in the Official Journal of the European Union and can enter into force. This regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union. Upon finalization, this regulation will help establish a framework to facilitate sustainable investment and will amend the EU Regulation 2019/2088.
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Keywords: Europe, EU, Banking, Insurance, Securities, Climate Change Risk, Taxonomy, ESG, Regulation 2018/2088, Disclosures, Sustainable Finance, European Council
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