Sustainable investment: European Parliament develops legal framework
Thursday, 18 June 2020
The European Parliament on Thursday laid down rules for determining what a sustainable investment is.
The new law will be important in light of the investments that Europe needs to achieve its goal of carbon neutrality by 2050, for which an additional €260 billion a year in investments will already be needed between now and 2030.
The regulation contains several criteria that determine whether an economic activity can be considered sustainable. These include, for example, activities that limit climate change, encourage the sustainable use of water or promote the circular economy.
The legislation also recognises two categories of activities which are not climate-neutral but which are deemed necessary in the transitional phase.
“The taxonomy for sustainable investments is probably the most important development for finance since accounting,” said Finnish Christian Democrat Sirpa Pietikainen.
Investment in solid fossil fuels, such as coal or lignite, are excluded, as the European Parliament pointed out. “Gas and nuclear energy, on the other hand, could be classified as an enabling or transitional activity, but in full respect of the principle of ‘not causing significant damage’,” according to the Parliament. Whether natural gas will benefit from support from the just transition mechanism is not clear.
The European Commission should now further refine and regularly update the technical selection criteria. To this end, it will be assisted by an advisory body made up of experts from the private and public sectors.