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03 February 2022

POLITICO: Green bust or green flush: Figuring out the impact of the EU’s new investment rules

The financial taxonomy creates a ‘common language’ for green investing.

The European Commission’s proposed list of green investments set off months of battles — now comes the time to see if it was all worth it.

On Wednesday the Commission put forward a second list of technologies that meet standards for being included in the Taxonomy Regulation — the rules on green investing that are supposed to send a clear signal to retail investors, money managers and bond issuers about the kinds of schemes that can legitimately be called green.

This last list included nuclear and natural gas — hedged with a lot of conditions — something that's outraging a lot of campaigners and sparking warnings of lawsuits from some member countries.

Last year the Commission put forward another, less controversial, list covering technologies like wind and solar. Next comes a list with environmental goals like water, biodiversity and the circular economy.

But does it really matter?

In its more audacious form, the taxonomy may redirect financial capital flows into truly green investments. Otherwise, it’s just a list that thanks to political fudges will simply be ignored. 

Here are two reasons why the fuss is warranted. And two reasons why it’s not.

Finance is going to have to jump through taxonomy hoops

This year, thousands of large EU-based companies, plus banks, insurers and fund managers, will for the first time disclose how the investments and products they claim are sustainable stack up against a common standard of green definitions. 

“The taxonomy has got a big gig — it’s a common language, which there has not been across the disclosures yet,” said Sean Kidney, CEO of the Climate Bonds Initiative think tank and a member of the Commission’s advisory Platform on Sustainable Finance.

"Every country, every government, every bank has a different [sustainability] framework," Kidney said. "So Barclay's puts out something, and Unicredit puts out something, and you can kind of compare ... but they hire their own consultants, they write different methodologies."

"How they get endorsed, who knows? Who can tell? Someone's paying a fortune to try and analyze them," he added.

Even if banks, insurers and fund managers may not agree with all the definitions on the EU's list, they can't afford to completely ignore the standard since their own performance will be assessed against it. And it's in their interest to make their "green ratios" of taxonomy-aligned holdings as high as possible.

In the coming years, it won’t just serve as a barometer for green products but as a gauge for how green entire companies are — and that will be public information.

A common standard makes it easier for people to choose green investments and compare them across financial institutions. It’ll also make it simpler for consumers to vote with their wallets if they don’t like what they see....

more at POLITICO


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