Finance

Europe defines what financiers can call green

With Europes green push comes new business opportunities — but Brussels wants to ensure theyre the right ones.

EU legislators on Thursday reached a provisional agreement on rules meant to clarify what counts as “green” finance. From its name — the taxonomy regulation — to the highly technical provisions on what can labeled as sustainable, the initiative seems obscure and complex.

But the agreement of the European Parliament, Council and Commission stands to be a crucial step in raising the money needed to meet the blocs climate goals.

“The EUs green standard will mean investors can no longer be sold fake green investments. If we want to halt climate change we need money to be flowing towards good things,” said William Todts, executive director of NGO Transport & Environment.

The Commission has big plans for the taxonomy. It will be the basis for an EU standard for green bonds and for an ecolabel for retail investment products, as part of the green financing strategy that Commission Executive Vice President Valdis Dombrovskis is working on.

It may also be used to facilitate banks loaning to green projects — something the Commission is considering as part of its review of banks capital requirements.

The agreement still needs to be approved by EU ambassadors and by political groups in Parliament, with a view to formalize the compromise in December.

POLITICO lists five things you should know about the taxonomy.

1. No greenwashing

Without a common definition for sustainable investment, financial firms can market products as green without disclosing their environmental credentials. The legislation will oblige them to measure investment products against a binding EU standard and disclose to what extent they align with it.

Negotiators engaged in a fierce battle over the extent to which this would apply to all financial products — the Parliaments position — or just the “green niche” of products labeled as sustainable, a less impactful option preferred by the Council. In the end, the new rules will apply to all funds that are marketed as sustainable or green, or that marginally contribute to an environmental objective, according to a draft compromise text seen by POLITICO.

The new rules will be binding from December 2021.

2. In or out?

Thursdays deal defines the legislative framework for the taxonomy but the full list of what can be called “sustainable” is still being worked on.

A Commission expert group has been tasked with creating technical screening criteria for economic activities that will make the grade. For instance, the experts wrote in a draft report this summer, investments into power generation would have to stay under 100 grams of carbon dioxide per kilowatt-hour, with an aim of reducing this cap every five years “in line with a trajectory to net-zero [carbon emissions] in 2050.” They also excluded investment in atomic energy on the grounds that nuclear waste is an environmental hazard without solution.“It was not possible … to conclude that the nuclear energy value chain does not cause significant harm to other environmental objectives,” they wrote.

The experts are due to submit a final report by the end of the year. Then it will be up to the Commission to cast the recommendations into law via delegated acts.

The gas and nuclear sectors have been lobbying to make the list, arguing they have an important role to play in decarbonizing the energy sector.

The rules agreed Thursday explicitly exclude investments into solid fossil fuels — something Parliament pushed for to halt investments in coal.

But France — which depends on nuclear energy for three-quarters of its power — opposed the outright exclusion of nuclear from the legal text. Instead, investments in nuclear will have to be checked against a “do-no-harm” principle taking into account the environmental problem of nuclear waste.

Thats seen as a win by some anti-nuclear policymakers. “The de facto exclusion of nuclear power was a success for the European Parliament,” said Sven Giegold, a Green MEP.

Others maintain this is still an open battle, which will re-emerge when the Commission drafts the relevant delegated acts.

3. Aiming for zero

The new Commission has made achieving net-zero greenhouse gas emissions one of its top strategic priorities. To get there, the bloc will need investment, and a lot of it.

The Commission estimates the EU needs €180 billion a year in additional investments over the next decade to reach its 2030 climate targets. If the EU wants to cut emissions to net-zero by 2050, the needed annual investments balloon to €290 billion.

Having a clear definition of what sectors need to be developed should help channel private capital into areas including offshore wind, electric vehicles, heat pumps and hydrogen.

The taxonomy should act as a “shopping list” for investors, said an official involved in negotiations.

4. Battle for standards

The EUs taxonomy wont be the only green investment standard. China — which has outpaced Europe as a producer of renewable energy, electric vehicles and batteries — already set its own.

Under the guidance of Ma Jun, chairing Chinas Green Finance Committee and formerly chief economist at Chinas central bank, Beijing set standards for sustainable investments to leverage private capital to decarbonize its economy. “Only 10 percent [of the costs] can be covered by government budget,” he told a Brussels conference earlier this year, adding the rest needs to come from the private sector. “Otherwise all the targets that youre setting … are not going to be possible.”

But Chinese standards for green bonds are laxer than Europes. For instance, they include new generation coal power plants. Brussels would like Beijing and others to fall in line withRead More – Source