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EU Sustainable finance strategy

Image credits: Nada Jovanovic, Sustainably Yours/EEA

The EU Sustainable Finance Strategy

Sustainable finance has a key role to play in delivering on the policy objectives under the European Green Deal as well as the EU’s international commitments on climate and sustainability objectives. It does this by channeling private investment into the transition to a climate-neutral, climate-resilient, environmentally sustainable, resource-efficient and fair economy, as a complement to public money.

To this end, the Commission has since 2018 been developing a comprehensive policy agenda on sustainable finance. The 2021 released sustainable finance strategy aims to support the financing of the transition to a sustainable economy by proposing action in four number of areas: transition finance, inclusiveness, resilience and contribution of the financial system and global ambition. The Commission is also coordinating international efforts through its International platform on sustainable finance.

As part of the sustainable finance strategy on 12 July 2020 the Taxonomy Regulation entered into force. It establishes the framework for the EU taxonomy by setting out four overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable. The EU Taxonomy Climate Delegated Act aims to support sustainable investment by making it clearer which economic activities most contribute to meeting the EU’s environmental objectives.

The EU taxonomy is an important enabler to scale up sustainable investment and to implement the European Green Deal. Notably, by providing appropriate definitions to companies, investors, and policymakers on which economic activities can be considered environmentally sustainable, it is expected to create security for investors, protect private investors from greenwashing, help companies to plan the transition, mitigate market fragmentation and eventually help shift investments where they are most needed.

In line with the Commission’s Sustainable Finance Action Plan, the EU has taken several measures to ensure that the financial sector plays a significant part in achieving the objectives of the European Green Deal. Better data from companies about the sustainability risks they are exposed to, and their own impact on people and the environment, is essential for the successful implementation of the European Green Deal and the Sustainable Finance Action Plan. In order to address these issues better the Commission adopted a proposal for a Corporate Sustainability Reporting Directive, which would amend the existing reporting requirements of the Non-Financial Reporting Directive.

To support the implementation, the European Commission sets up an advisory body, the Platform on sustainable finance, for dialogue and close cooperation among a wide range of stakeholders from the public and private sector. It not only develops the Taxonomy further, including new economic activities for the adaptation objective, but will also extent the Taxonomy with significantly harmful and low impact activities, social objectives or data availability and usability criteria.