Getting to Grips with the EU Taxonomy Regulation

Designed to deter greenwashing, will the new classification system release asset owners to invest sustainably?

The European Union has admirable ambitions. In its European Green Deal, the 27 member states collectively aim for net-zero carbon emissions by 2050. A key component of the deal is the bloc’s plan for a sustainable finance sector capable of channelling private capital to support the transition to and construction of a climate-neutral economy.

To help investors identify investments that will contribute to this objective, the EU has drafted its Taxonomy Regulation, a crucial (and lengthy, at 600-odd pages) classification framework which attempts to define the environmental impact of economic activities across a range of industries.

Behind the taxonomy is the fundamental concept of doing “no significant harm”. If an economic activity substantially contributes to one environmental objective but also significantly harms another, it is not considered sustainable. Further, the activity only qualifies as sustainable with reference to a specified performance benchmark, for example only emitting a certain level of greenhouse gasses.

The six objectives are … [continues]

Read the full article on Regulation Asia’s sister publication, ESG Investor.

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