What is sustainable and environmental will soon be defined

Now that the European Parliament and Council have reached an agreement on the new criteria for environmentally sustainable economic activities, EU-wide rules to determine which investments are green are closer than before. The Finnish financial sector has long supported the harmonisation of these criteria, and trusts the reform will make investment decisions easier.

Curbing climate change through investments is possible especially for institutional investors like pension companies, insurers and banks. EU-wide criteria to determine the sustainability impact of investments are currently being developed. This work has now taken a step forward – and according to FFI sustainability expert Elina Kamppi, it was a big one.

“The classification system or taxonomy for sustainable investments will be the basis for many other ongoing legislative reforms, too. It is good that we’re making progress in laying down common EU-wide criteria.”

According to the European Council, the ‘first round’ of the taxonomy will be further specified during 2020. The plan is to have the full taxonomy in place by the end of 2021.

In the negotiations, the Parliament and Council expanded the scope of application from the Commission’s original proposal. The obligation to disclose taxonomy-compliant activities now applies to all large companies, not just the financial sector. Kamppi trusts that this will make the taxonomy more important in corporate sustainability assessment. Originally, the work to develop a classification system for sustainable economic activity only aimed at facilitating investment decisions.

“Activity that matches the criteria can be, for example, fitting factory chimneys with carbon dioxide filters. Under the new legislation the company discloses what percentage of its turnover is accounted for by this taxonomy-compliant activity. Monitoring the growth of this percentage, we can determine whether the company has developed its activities in a more sustainable direction”, Kamppi explains.

As the president country, Finland represented the Council in the tripartite negotiations with the EU Parliament and Commission. The Parliament and the Council still need to formally confirm their political agreement on the classification system, also referred to as the taxonomy regulation.