EU Green Financial Plan: More Questions Than Answers
As the EU works towards its goal of becoming the first climate-neutral continent, certain aspects of the European Green Deal have had to be renewed to accelerate implementation and achieve the stated goals. Most recently, the EU Commission has adopted several measures in order to expand sustainable finance, and is currently set to become the biggest issuer of green debt globally. However, while the EU has taken legislative action to implement the Green Financial Plan, questions concerning the overall effectiveness of the steps being taken remain.
Sustainable Financial Strategy
The new Sustainable Finance Strategy aims to implement measures to help industries better address climate change, as well as provide greater aid to small and medium-sized enterprises focused on sustainable development. This strategy is also focused on adjusting the economic and financial system to increase resilience to sustainability risks, ensuring the integrity of the financial system as the continent makes its transition. In addition to meeting the targets set in the European Green Deal, the EU has renewed its focus on its implementation in order to centralize sustainability within its economic recovery from COVID-19.
European Green Bond Standard
As a part of the transition, the Commission proposed a new regulation in order to create a voluntary high quality standard that will be available to all issuers to help finance sustainable development. Coined the European Green Bond Standard, the EU aims to provide this tool not just to assist issuers, but to reassure investors that their investments are actually meeting their goals, in order to reduce greenwashing. The EU has targeted greenwashing in particular in order to protect legitimate environmental projects, and to see that market integrity is upheld. In the future, the EU is aiming for this to be the unified standard for green bonds -- these will be available to all issuers, regardless of where they are located, with the goal of promoting sustainability worldwide.
EU Taxonomy
Lastly, the EU Commission further supplemented the Taxonomy Regulation which requires all companies to supply their investors with information regarding the environmental performance of their assets and economic activities. The Commission has now laid out formal rules for how companies should undertake this disclosure, requiring financial and non-financial companies to report actions associated with environmentally sustainable economic activities.
What Qualifies as Sustainable?
Despite this progress, concerns have been raised regarding what is considered “sustainable” in the EU. Primarily, there is no consensus on the status of gas and nuclear energy, and as such, neither are eligible for inclusion in the European Green Bond Standard. While the use of these sources can be controversial, the EU considers itself in a transitional period and sees their use as necessary in the process. However, there is concern that if the EU permits fossile gas in the green taxonomy, it will potentially weaken the overall effectiveness of the legislation. As the EU looks to further develop legislation in the area of sustainable development, it aims to be mindful when making distinctions between sustainable and unsustainable technology. However, a general lack of action on such issues has led to criticism from fiscal and environmental organizations, who state that the overall plan fails to provide climate neutral roadmaps and sector-specific targets, potentially resulting in significant delays to energy transitions for Member States.
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