EU taxonomy and sustainable finance
The European Green Deal aims to mobilise private investment for the transition to a climate-neutral economy. Hence, in the context of its Action Plan: Financing Sustainable Growth, the EU created a unified classification system – or taxonomy framework – for a shared understanding of what ‘sustainable’ investments are.
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Large sums of money must be invested if Austria is to achieve its 2040 climate targets, and the European Union to achieve its 2050 targets. These investments must create sustainable growth, thus adding value and creating jobs in futureproof sectors.
EU Taxonomy Regulation and sustainable finance
Which investments and economic activities are environmentally friendly? Which ones actually contribute to meeting our climate targets? We need clear, transparent answers to these questions. That’s why the EU agreed the Taxonomy Regulation (→ EUR-Lex) in June 2020. This Regulation stipulates that economic activities only qualify as green if they make a major contribution to achieving environmental objectives. At the same time, ‘green’ activities must not significantly harm other environmental objectives.
For example: Generating electricity from wind qualifies as green because, since it uses a renewable source of energy, it makes a major contribution to climate protection. At the same time, wind farms must comply with all applicable regulations, including on protecting wildlife.
The Regulation places an obligation on financial market participants and large companies to declare any turnover and investments relevant to the taxonomy. This goes further than existing reporting obligations arising from the Disclosure Regulation (→ EUR-Lex) and the Non-Financial Reporting Directive (→ EUR-Lex), as it includes information relevant to the taxonomy. What is more, member states and the EU itself must also apply the taxonomy in any certification systems they have for green finance products. This will help investors to choose an environmentally friendly finance product, such as a sustainable investment fund or insurance product. It is also a way of preventing greenwashing: companies may no longer call their products green unless they meet the requirements.
Climate protection and climate change adaptation targets
On 21 April 2021, the European Commission published its detailed Sustainable Finance Package (→ EC) of requirements for economic activities; the package supports climate protection and climate change adaptation. Its list of economic activities covers 40 percent of companies listed on the stock market and 80 percent of direct greenhouse gas emissions within the EU. The package’s thresholds for environmental sustainability were based on recommendations by the Technical Expert Group (→ EC), with input from stakeholders.
Technical screening criteria are applied to a wide variety of economic sectors including manufacturing, energy generation, forestry, water, construction, waste, transport and information technology. A permanent expert group of the European Commission, the Platform on Sustainable Finance (→ EC), was established under the Taxonomy Regulation. Among its other responsibilities, the Platform will help the Commission to develop the technical screening criteria.
It is especially important to Austria that these criteria be reliable and based on facts. This is the only way we can ensure consumers know where they’re investing their money. In recent months, Austria has strengthened its resolve on this issue. As a country, we have clearly stated that technologies such as nuclear power and energy from fossil fuels cannot be classified as ‘green’. Sadly there have been efforts from other member states and representatives of private interests to portray these harmful technologies as environmentally friendly.
Future focus: What next for the EU taxonomy?
Publishing these criteria is a first, successful step – and Austria played a major role in ensuring that nuclear energy and fossil fuels were not included. However, discussions continue and further details will be established over the second half of this year. One point for discussion is the requirement that a ‘green’ economic activity be compatible with biodiversity or with the circular economy.
Another – politically controversial – decision will be whether nuclear energy and natural gas are environmentally sustainable. From Austria’s perspective, the answer is clearly no: neither type of energy can be termed ‘green’! Our future energy system must be built on renewable energy sources plus energy efficiency. Austria is joining forces with like-minded member states to call clearly for this future.
Study: Nuclear energy is not a green investment
A recent study commissioned by the Ministry of Climate Action confirms that nuclear energy does not meet the requirements of the EU Taxonomy Regulation from a legal perspective. Nuclear energy cannot be considered an "environmentally sustainable economic activity" or a "transitional activity" within the Taxonomy Regulation. The study concludes that any legal act adopted on the basis of the Taxonomy Regulation that includes nuclear energy in the European taxonomy would be open to challenge before the EU courts.