How the EU regulates sustainability

Sustainable finance – all hot air and empty promises? Hardly: the EU has managed to create a solid foundation in just a few months with a full set of objectives, benchmarks and rules.

Objective: Green Deal

The European Green Deal provides a roadmap setting out how the EU intends to achieve its objective of being climate-neutral by 2050. The plan revolves around the idea of decoupling economic growth from resource consumption, the de facto consequence of which is that in future, growth will by definition have to be sustainable.

by 2050

the EU intends to achieve its objective of being climate-neutral

Measures: EU Action Plan

The EU's action plan aims to use regulation to create a situation in which the financial system promotes sustainable economic development. What this means in practice is directing capital flows towards sustainable investments, increasing transparency and highlighting the financial risks that arise if ESG issues are neglected.

„Today’s new rules are a game changer in finance. (...) What we now need to do is turn words into action.“

Mairead MCGuiness
European Commissioner

European Commission

On the European Commission's website you will find detailed information on sustainable finance and the EU taxonomy.

Central instrument: EU taxonomy

The EU taxonomy, which is one of the elements of the action plan, makes it possible to measure the sustainability of specific economic activities. While the taxonomy's six objectives are at the moment still limited to environmental factors, additions to cover social dimensions of sustainability are already being considered. All the criteria are solely about compliance – and compliance must be achieved without causing adverse consequences elsewhere.

The criteria for sustainability as defined by the EU taxonomy

1. Climate change mitigation

2. Climate change adaptation

3. The sustainable use and protection of water and marine resources

4. The transition to a circular economy

5. Pollution prevention and control

6. The protection and restoration of biodiversity and ecosystems

More on Sustain­able Finance

Sustainable Finance Glossary – Image Source: Lobro78 via Getty Images
Sustainable Finance Glossary – Image Source: Lobro78 via Getty Images

What is sustainable finance?

Key terms associated with the issues of sustainability and green finance - explained in a clear and straightforward way.

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