Sustainable finance: classification system for sustainability of investments
The European Union is setting up a common classification system for environmentally sustainable investments. Harmonised criteria will aid responsible investment, because in future investors will receive better information on the sustainability of different investments and be better able to compare them. Service providers currently use a variety of different methods for determining the sustainability of a financial product. This means that consumer investors and small institutional investors in particular find it difficult to assess the sustainability of an investment.
The classification system is being created initially on the basis of climate and other environmental objectives. The aim is to broaden the classification system later on to cover social responsibility goals and good governance as well.
Goal is to direct capital towards more sustainable investments
To achieve its 2030 climate and energy goals, the EU needs at least €180 billion a year of additional investments. The aim of the European Commission’s proposals is to direct additional private capital to more sustainable investments on the capital market. If capital is to be directed increasingly to these types of investments, the investor has to be able to assess the extent to which they can be considered responsible investments.
EU member states reached political agreement on the classification system in September 2019. Finland, as the country holding the Presidency of the Council of the EU, then held trilogue negotiations with the European Parliament and the Commission. The parties reached agreement on the reform in December.
Part of a broader package on sustainable finance
The classification system is part of the European Commission’s action plan on financing sustainable growth. The Commission has issued three proposals for regulations on the matter, one of which is the proposal concerning an EU classification system (‘taxonomy’). Another concerns the information provision requirements for financial intermediaries, and the third, the maintenance of benchmarks for sustainable investments.
European Commission press release (24 May 2018): Sustainable finance: Making the financial sector a powerful actor in fighting climate change
Marianna Uotinen, Senior Specialist, tel. +32 473 523 119, marianna.uotinen(at)formin.fi