The European Commission has adopted an ambitious and comprehensive package of measures to help improve the flow of money towards sustainable activities across the European Union. By enabling investors to re-orient investments towards more sustainable technologies and businesses, today's measures will be instrumental in making Europe climate neutral by 2050. They will make the EU a global leader in setting standards for sustainable finance.
The package is comprised of:
- 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. The College of Commissioners today reached a political agreement on the text. The Delegated Act will be formally adopted at the end of May once translations are available in all EU languages. A Communication, also adopted by the College today, sets out the Commission's approach in more detail.
- A proposal for a Corporate Sustainability Reporting Directive (CSRD). This proposal aims to improve the flow of sustainability information in the corporate world. It will make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information.
- Finally, six amending Delegated Acts on fiduciary duties, investment and insurance advice will ensure that financial firms, e.g. advisers, asset managers or insurers, include sustainability in their procedures and their investment advice to clients.
The European Green Deal is Europe's growth strategy that aims to improve the well-being and health of citizens, make Europe climate-neutral by 2050 and protect, conserve and enhance the EU's natural capital and biodiversity.
As part of that effort, companies need a comprehensive sustainability framework to change their business models accordingly. To ensure the transition in finance and prevent greenwashing, all elements of today's package will enhance the reliability and comparability of sustainability information. It will put the European financial sector at the heart of a sustainable and inclusive economic recovery from the COVID-19 pandemic and the longer-term sustainable economic development of Europe.
EU Taxonomy Climate Delegated Act
The EU Taxonomy is a robust, science-based transparency tool for companies and investors. It creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. It will also introduce disclosure obligations on companies and financial market participants.
Today's Delegated Act, politically agreed today by the College of Commissioners, introduces the first set of technical screening criteria to define which activities contribute substantially to two of the environmental objectives under the Taxonomy Regulation: climate change adaptation and climate change mitigation. These criteria are based on scientific advice from the Technical Expert Group (TEG) on sustainable finance. It follows extensive feedback from stakeholders, as well as discussions with the European Parliament and Council. This Delegated Act would cover the economic activities of roughly 40% of listed companies, in sectors which are responsible for almost 80% of direct greenhouse gas emissions in Europe. It includes sectors such as energy, forestry, manufacturing, transport and buildings.
The EU Taxonomy Delegated Act is a living document, and will continue to evolve over time, in light of developments and technological progress. The criteria will be subject to regular review. This will ensure that new sectors and activities, including transitional and other enabling activities, can be added to the scope over time.
A new Corporate Sustainability Reporting Directive
Today's proposal revises and strengthens the existing rules introduced by the Non-Financial Reporting Directive (NFRD). It aims to create a set of rules that will – over time – bring sustainability reporting on a par with financial reporting. It will extend the EU's sustainability reporting requirements to all large companies and all listed companies. This means that nearly 50,000 companies in the EU will now need to follow detailed EU sustainability reporting standards, an increase from the 11,000 companies that are subject to the existing requirements. The Commission proposes the development of standards for large companies and separate, proportionate standards for SMEs, which non-listed SMEs can use voluntarily.
Overall, the proposal aims to ensure that companies report reliable and comparable sustainability information needed by investors and other stakeholders. It will ensure a consistent flow of sustainability information through the financial system. Companies will have to report on how sustainability issues, such as climate change, affects their business and the impact of their activities on people and the environment.
The proposal will also simplify the reporting process for companies. Many companies are currently under pressure to use an array of different sustainability reporting standards and frameworks. The proposed EU sustainability reporting standards should be a “one-stop-shop”, providing companies with a single solution that meets the information needs of investors and other stakeholders.
Amendments to Delegated Acts on investment and insurance advice, fiduciary duties, and product oversight and governance
Today's six amendments encourage the financial system to support businesses on the path towards sustainability, as well as supporting existing sustainable businesses. They will also strengthen the EU's fight against greenwashing.
- On investment and insurance advice: when an adviser assesses a client's suitability for an investment, they now need to discuss the client's sustainability preferences.
- On fiduciary duties: today's amendments clarify the obligations of a financial firm when assessing its sustainability risks, such as the impact of floods on the value of investments.
- On investment and insurance product oversight and governance: manufacturers of financial products and financial advisers will need to consider sustainability factors when designing their financial products.
An Economy that Works for People Executive Vice President Valdis Dombrovskis said: “Europe was an early leader in reforming the financial system to support investments for climate change. Today, we are taking a leap forward with the first-ever climate taxonomy which will help companies and investors to know whether their investments and activities are really green. This will be essential if we are to mobilize private investment in sustainable activities and make Europe climate-neutral by 2050. This is a ground-breaking step for which we have consulted far and wide. We left no stone unturned in seeking a balanced, science-based outcome. We are also proposing improved rules on sustainability reporting by companies. By developing European standards, we will build on and contribute to international initiatives.”
Mairead McGuinness, commissioner responsible for financial services, financial stability and the Capital Markets Union, said: ““The financial system plays a crucial role in the delivery of the EU Green Deal, and significant investments are required to green our economy. We need all companies to play their part, both those already advanced in greening their activities and those who need to do more to achieve sustainability. Today's new rules are a game changer in finance. We are stepping up our sustainable finance ambition to help make Europe the first climate-neutral continent by 2050. Now is the time to put words into action and invest in a sustainable way.”
Background and next steps
The EU has taken major steps over the past number of years to build a sustainable financial system that contributes to the transition towards a climate-neutral Europe. The EU Taxonomy Regulation, the Sustainable Finance Disclosure Regulation and the Benchmark Regulation form the foundation of the EU's work to increase transparency and provide tools for investors to identify sustainable investment opportunities.
Once formally adopted, the EU Taxonomy Climate Delegated Act will be scrutinised by the European Parliament and the Council (four months and extendable once by two additional months).
Regarding the CSRD Proposal, the Commission will engage in discussions with the European Parliament and Council.
The six amendments to Delegated Acts on investment and insurance advice, fiduciary duties, and product oversight and governance will be scrutinised by the European Parliament and the Council (three month periods and extendable once by three additional months) and are expected to apply as of October 2022.
 An economic activity pursuing this objective should contribute substantially to reducing or preventing the adverse impact of the current or expected future climate, or the risks of such adverse impact, whether on that activity itself or on people, nature or assets.
 An economic activity pursuing this objective should contribute substantially to the stabilization of greenhouse gas emissions by avoiding or reducing them or by enhancing greenhouse gas removals. The economic activity should be consistent with the long-term temperature goal of the Paris Agreement.
Executive Vice President Frans Timmermans attends Petersberg Climate Dialogue
Today (7 May), Executive Vice President Frans Timmermans participates in the 12th Petersberg Climate Dialogue, an annual high-level political meeting of over 30 ministers from around the world, co-hosted by the German government and the COP26 Presidency. The meeting will start at 14h CEST today with remarks by UN Secretary-General António Guterres, Federal Chancellor of Germany Angela Merkel and UK Prime Minister Boris Johnson. Their speeches will be live-streamed here. This year's Petersberg Dialogue will focus on the preparations for the upcoming COP26 climate conference in Glasgow. It will address pressing issues such as enhancing countries' climate-resilience and adaptation capacity, scaling up international climate finance, and promoting transparent international carbon market rules. The meeting will be held virtually for the second year in a row due to the ongoing COVID-19 pandemic. The Commission will publish Executive Vice-President Timmermans' remarks climate finance on Friday here. For more information see here.
EU sets plan to promote rapid green transition of key industries
The European Union aims to help industries slash greenhouse gas emissions by promoting a rapid expansion of investment in low-carbon technologies, partly through schemes with easier state aid rules, according to a draft policy plan seen by Reuters, writes Kate Abnett.
The EU's target to become climate neutral by 2050, helping curb dangerous global warming, will require a green transition in industrial sectors through a take-up of technologies like renewable hydrogen fuel and energy storage.
A draft of the European Commission's industrial strategy, to be published on Wednesday, outlines how Brussels will help speed investments in those strategic areas, plus others such as raw materials and semiconductors.
The EU is considering ways to support and speed up the rollout of Important Projects of Common European Interest (IPCEI), where member states can pool resources for strategic technologies, the draft said.
IPCEIs allow EU governments to fund projects under easier rules pertaining to state subsidies and for companies to team up on projects that would be too large or risky for one firm alone.
"These projects could accelerate needed investments in the fields of hydrogen, 5G corridors, common data infrastructure and services, sustainable transport, blockchain or European Digital Innovation Hubs," the draft said.
It said some EU states plan to use money from a 672-billion-euro EU COVID-19 recovery fund towards these multi-country projects. Member states must spend 37% of their respective share of recovery funds to support climate objectives.
The Commission is also considering a support scheme, called "contracts for difference", that would guarantee a CO2 price to a project developer regardless of EU carbon market prices.
This could encourage investments in technologies like hydrogen produced from renewable energy. EU carbon prices soared to record highs on Tuesday, but remain far below the price at which analysts say renewable hydrogen could compete with the fossil fuel-based alternative. Read more.
The industry plan slots together with other EU measures to steer cash into green technologies, including its recently-agreed system to classify sustainable investments, and planned environmental standards for electric car batteries sold in Europe.
Brussels will also announce details this summer of a plan to impose carbon border costs on imports of polluting goods. That aims to level the playing field for EU industry and overseas firms by exposing them both to the same carbon price.
The draft industrial plan, reported by Reuters last week, updates a strategy the EU conceived before the COVID-19 pandemic heightened scrutiny of Europe's dependence on foreign suppliers in strategic areas. Read more.
Commission extends flexibilities of Common Agricultural Policy checks for 2021
With restrictions still in place across the EU, the Commission has adopted rules to extend to 2021 flexibilities for carrying out checks required for Common Agricultural Policy (CAP) support. The rules allow the replacement of on-farm visits with the use of alternative sources of evidence, including new technologies such as satellite imagery or geo-tagged photos. This will ensure reliable checks while respecting the restriction of movement and minimizing physical contact between farmers and inspectors.
Furthermore, the rules include flexibility around timing requirements for checks. This allows member states to postpone checks, notably to a period when movement restrictions are lifted. In addition, the rules comprise a reduction of the number of physical on-the-spot checks to be carried out for area and animal-related measures, rural development investments and market measures. These rules aim to ease the administrative burden of national paying agencies by adapting to current circumstances while still ensuring necessary controls for CAP support. More information on the CAP's management and control systems is available here. More information is also available here.
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