Latest EU sustainable finance rules 'crucial' in fight against greenwashing and net zero goals

Mike Sheen
clock • 2 min read
Latest EU sustainable finance rules 'crucial' in fight against greenwashing and net zero goals

The European Commission's latest package of classifications for sustainable finance activity has been labelled a "crucial" step in the European Union's ongoing efforts to tackle greenwashing and meet its 2050 net zero goals. 

However, experts have warned that "time is of the essence" and EU legislators must move quickly to develop its Technical Screening Criteria (TSC) for the bloc's remaining environmental objectives.

On Wednesday (22 April) the European Commission published its "ambitious and comprehensive" package of three broad measures to encourage capital flows towards sustainable activities across the EU.

A vital step towards helping investors identify what is and is not green, and in turn tackle so-called greenwashing."

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.

Secondly, the Corporate Sustainability Reporting Directive (CSRD) aims to improve the flow of sustainability information in the corporate world.

Finally, the commission has amended six Delegated Acts on fiduciary duties, investment and insurance advice that will ensure that financial firms, such as asset managers, "include sustainability in their procedures and their investment advice to clients".

The European Commission said the package of measures would enable investors "to re-orient investments towards more sustainable technologies and businesses", which is "instrumental in making Europe climate neutral by 2050".

"They will make the EU a global leader in setting standards for sustainable finance," it added.

More to come

Commenting on the package of measures, government relations manager at law firm Norton Rose Fulbright Daniel Nevzat explained they mark the "finalisation of a unified classification system of sustainable economic activities concerning climate change mitigation and climate change adaptation", which is "a vital step towards helping investors identify what is and is not green, and in turn tackle so-called greenwashing".

"The classifications given to the underlying investments of investment products will be crucial in ensuring that they are achieving their sustainability goals while delivering high levels of transparency in the market," he added.

However, ESG funds lawyer at Linklaters Julia Vergauwen explained that the European Commission has delayed its decision with regard to classifying its TSC for more controversial industries and their role in the climate transition.

"The new draft Delegated Act does not include natural gas and nuclear technology as transitional activities contributing to decarbonisation," she said. "This change comes as a response to the heavy lobbying from the Platform on Sustainable Finance, the European Parliament and Member States to the European Commission over the last weeks.

"We will have to wait until Q4 2021 for the Commission to present a new legislative proposal for rules to establish TSC for gas, nuclear and other technologies in the energy sector outside of the limits imposed by the procedures set in the Taxonomy Regulation. "

CSRD

Responding to the package of measures, the European Fund and Asset Management Association (EFAMA) urged European legislators to move quickly and ensure the "swift adoption" of the CSRD standards.

The European trade body's director general Tanguy van de Werve described the CSRD proposal as "essential in reducing the ESG data gaps faced by asset managers and supporting the development of green investment products".

"We call on the co-legislators to maintain the high level of ambition of the Commission's proposal and to ensure its swift adoption," he said. "Time is of the essence." 

Regulatory policy adviser at EFAMA Dominik Hatiar added: "In the context of the EU Green Deal and Recovery Plan, we see the proposed CSR Directive as a key enabler for taxonomy-aligned sustainable investments and look forward to the first disclosures becoming available on 1 January 2024."