Political Agreement On Taxonomy

On 17 December 2019, the European Parliament announced that negotiators from the European Parliament and the Council of the EU had reached an agreement on the „taxonomy regulation“, which sets criteria for determining the environmental impact of an economic activity. The new rules will be formally adopted by the Council and Parliament following the legal and linguistic revision of the text as part of the `second early reading` procedure. One of the main objectives of the action plan is to redirect capital flows towards sustainable investments in order to achieve sustainable and inclusive growth. The most important and urgent measure in the action plan is the establishment of a uniform classification system for activities that contribute to environmental objectives. The Commission believes that eu-wide taxonomy will have the advantage of both avoiding fragmentation of the systems of different Member States and avoiding the practice of „greenwashing“ – when a company gains an unfair competitive advantage by marketing a financial product in an environmentally friendly manner if, in fact, it does not meet basic environmental standards. In addition, the standardisation of the concept of environmentally friendly investment in the EU and between Member States should facilitate investment in environmentally friendly economic activities. EU ambassadors have approved a political agreement between the Finnish Presidency of the Council and the European Parliament on an EU-wide classification system (taxonomy) that will give a common language to businesses and investors to determine which economic activities can be considered environmentally sustainable. At present, there is no common classification system at EU or global level to define environmentally sustainable economic activity. The proposed Regulation aims to reduce fragmentation through market-based initiatives and national practices and to reduce the practice of marketing financial products as environmentally friendly or sustainability-friendly if they do not meet basic environmental standards. Taxonomy will allow investors to focus their investments on more sustainable technologies and businesses.

It will be essential for the EU to become climate neutral by 2050 and achieve the 2030 Paris Agreement targets. These include a 40% reduction in greenhouse gas emissions, for which the Commission estimates that the EU needs to fill an investment gap of around EUR 180 billion per year. The regulation recognises six distinct types of economic activities, considered to be taxonomy-friendly activities: on 18 December 2019, the Council and the European Parliament reached a political agreement on the taxonomy regulation. On 15 April 2020, the Council adopted its position at first reading on the taxonomy regulation in writing.