The new law does not only put an end to this, but even gives the European Commission a mandate to decide which investments are harmful to the environment.
“Phasing out those activities and investments is as important to achieving climate neutrality as supporting decarbonised activities”, said Economic Affairs Committee rapporteur Bas Eickhout (Greens/EFA, NL).
The new legislations lays down six environmental objectives and allows economic activity to be labelled as environmentally sustainable if it contributes to at least one of the objectives without significantly harming any of the others:
- climate change mitigation;
- climate change adaptation;
- sustainable use and protection of water and marine resources;
- transition to a circular economy, including waste prevention and increasing the uptake of secondary raw materials;
- pollution prevention and control; and
- protection and restoration of biodiversity and ecosystems.
Establishing clear European “green” criteria for investors is key to raising more public and private funding so that the EU can become carbon neutral by 2050 as set out in the European Green Deal. The Commission estimates that Europe needs around € 260 billion per year in extra investments to achieve its 2030 climate and energy targets.
“The taxonomy for sustainable investment is probably the most important development for finance since the invention of accounting”, said lead negotiator for the Environment Committee, Sirpa Pietikainen (EPP, FI). “It will be a game changer in the fight against climate change.”
The law will enter into force after publication in the Official Journal and will be evaluated by the European Commission at the end of 2021. For the time being, only parties who advertise an investment as sustainable are obliged to meet the criteria. Investing in oil companies or palm oil plantations is therefore still possible. However, companies that score poorly on the European criteria will eventually be seen as more financially risky, say spokesmen for the banking sector. It makes investing in unsustainable companies less interesting.