Recent green finance development - EU taxonomy

The danger of ‘greenwashing’ non-sustainable assets led the EU to publish their taxonomy to protect the integrity of the green loan market. We breakdown the EU taxonomy briefly to demystify the recent development.

EU Taxonomy final report was published on 9 March 2020 to provide standards and measurable criteria to determine ‘green’ and is supplemented by a technical annex including and updated methodology and technical screening criteria. This establishes a framework to facilitate the transition to sustainable investment and provides a classification system to determine which economic activities are low carbon, resilient and resource efficient.

The EU’s Technical Expert Group (“TEG”) have set performance thresholds for economic activities which:

• make a substantive contribution to one of the six environmental objectives listed below;
• do no significant harm to the other objectives; and
• meet all minimum safeguards (i.e. UNGP and OECD Guidelines).

The methodology for determining the first two objectives is fully set out in the taxonomy and the methodology for the remaining four objectives is expected by the end of 2021.

The methodology for determining the first two objectives is fully set out in the taxonomy and the methodology for the remaining four objectives is expected by the end of 2021.

The EU taxonomy includes six environmental objectives:

1. Climate change mitigation

2. Climate change adaption

3. Sustainable protection of water and marine resources

4. Transition to a circular economy

5. Pollution prevention and control

6. Protection and restoration of biodiversity and ecosystems