Climate change and low-carbon solutions are affecting investors’ portfolios.
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LONDON – Lack of clarity on what should be classified as a climate-friendly investment was one of the biggest obstacles preventing money flowing to the area. But the EU wants to change that.
Investors have complained that it is difficult to choose which companies are acting responsibly on the climate front because there is no general set of standards to analyze the key information.
However, the European Commission, the EU’s executive, on Wednesday announced a new set of rules to explain what can be classified as a green investment and what not. This regulation is expected to make it easier for investors to invest their money in projects that will contribute to the sustainability of the planet.
The classification, known as taxonomy, will now be discussed with member states and European legislators before it becomes law. It is part of the EU’s wider efforts to become the first carbon – neutral continent in the world by 2050.
“We are taking a leap forward with the very first climate taxonomy that will help businesses and investors know if their investments and activities are really green. This is essential if we want to mobilize private investment in sustainable activities and Europe climate-neutral by 2050 , “said Valdis Dombrovskis, executive vice-president of the European Commission, in a statement.
To achieve its carbon neutrality goal, the commission has proposed that member states reduce their emissions by at least 55% by 2030, compared to 1990 levels. The efforts made at national level will be regularly investigated.
“Major investments are needed to green our economy. We need all businesses to play their part, both those who are already advanced to expand their activities and those who need to do more to achieve sustainability,” said Mairead McGuinness, commissioner responsible for financial services, said in a statement.
What is green?
The new classification considers an economic activity to be climate friendly if it contributes to one of two possible objectives: that is to reduce or prevent the adverse effects of climate change on oneself, on people, nature or assets; or it contributes to the reduction of greenhouse gas emissions.
The new document, which according to the commission is based on scientific criteria, is only a first step and is expected to be updated over time.
“These criteria create a common ground for businesses and investors, enabling them to communicate credibly about green activities and help them navigate the transition to sustainability,” the commission said in the document.
It added that the new criteria cover the economic activities of around 40% of listed companies in the EU, in sectors responsible for almost 80% of greenhouse gas emissions in Europe.
However, this does not include nuclear activity or gas, at least for now.
The commission is waiting for more information before deciding whether nuclear power, a divisive issue, will appear in the taxonomy. But ultimately, it is subject to political pressure from member states that have high investments in nuclear power, such as France.