The European Union approved a key set of rules on how investors must report the climate-related impact of their portfolios under the Sustainable Finance Disclosure Regulation, starting next year.
As expected, the Taxonomy Climate Delegated Act confirmed into law the criteria for reporting of the carbon intensity of various economic activities such as the production of steel or transport and those that help mitigate climate change.
The delegated act specified in detail the conditions under which, for example, the production of steel, cement and other building materials, forestry, water supply, transport, communication or the generation of energy can contribute to climate change.
As of Jan. 1, managers and investors will be required to specify the degree to which their ESG investments, broadly known as Article 8 investments, and impact investments, known as Article 9 investments, are aligned with the taxonomy. Managers and investors will also be required to report on the carbon emissions of their overall portfolios.
The taxonomy is seen as an environmental performance benchmark, setting a common language for investors, companies, and managers. The EU is expected to deliver further details in the future around taxonomy requirements, including a list of activities that are deemed to be harmful to the environment.
"The adoption of the first set of EU taxonomy criteria is a significant achievement, as it sets into law for the first time a common understanding of which and to what extent activities covered are environmentally sustainable. It is now crucial that the EU taxonomy technical screening criteria remain based on the best available scientific evidence," Fiona Reynolds, CEO of the United Nations' Principles for Responsible Investment, said in an emailed comment Thursday.
The approved rules will also "put a stop to greenwashing in financial markets," Sven Giegold, Member of European Parliament, financial and economic policy spokesman of the Greens/EFA group, said in a separate email. "The EU taxonomy will ensure that in the future, green financial products really finance green investments." It will also "channel money into urgently needed investments for the future," he said.