21 June 2019

How we can shape the future of environmental finance

On 18 June, the European Commission released a number of documents which will shape the future of sustainable finance in the European Union. Two of them are of particular importance for our work, as they will heavily feed into the development of ISO standards.

Guidelines on Corporate Climate Related Information Reporting

The European Commission published guidelines on corporate climate-related information reporting, which EU companies employing over 500 employees (about 6 000 firms in total) will have to follow when disclosing non-financial information under the Non-Financial Reporting Directive.

ECOS welcomes this step towards increased transparency and comparability of the climate impacts of companies and climate risks they bear. Such valuable information for investors and civil society actors will help make big polluters more accountable for their carbon footprint. In the future, we hope to see these guidelines widely used, also by SMEs, to drive more climate-proof businesses. ECOS will also promote the use of these guidelines internationally in order to scale up the transparency efforts of businesses, within the International Standardisation Organisation (ISO). In fact, a working group within ISO where ECOS is particularly active, is currently developing a standard for financial institutions wishing to show their contribution to long-term climate objectives of the Paris Agreement.

Report from the technical expert group on a taxonomy for environmentally sustainable economic activities

The European Commission Technical Expert Group (TEG) made public its 400-page report which includes a classification of “climate friendly activities”. These activities are meant to substantially contribute to climate mitigation and adaptation goals, while not significantly causing harm to the environment. While several organisations and governments (e.g. China or the Climate Bonds Initiative) have already come up with such classifications, this is currently the most comprehensive taxonomy available worldwide.

Undoubtedly, this mapping exercise is key in channelling money to the more environmentally-friendly activities. One of the main risks of such exercise is, however, the enabling of green claims on investments which would have happened anyways.

After a first reading of the EU taxonomy, we found a number of positive and ambitious criteria for certain activities, while some others were slightly disappointing. For instance, this is the case in the “Manufacture of Biomass, Biogas or Biofuels” category, which does not go beyond the legal requirements of the Revised Renewable Energy Directive: this means that any biofuel entering the EU market under RED II – including crop-based ones – would be labelled “environmentally sustainable”. As a consequence, we would be labelling as sustainable palm- and soy-based biofuels, both of which contribute to deforestation.

This classification is not yet final: parts of the document of the Technical Expert Group will be open for feedback in July, before the European Commission finally adopts the taxonomy in October. This will be a unique opportunity for civil society organisations to shape the future of sustainable finance and raise the level of ambition.

Feedback at this stage is crucial since, once adopted, the EU taxonomy will also largely feed into ISO standards on “Green Debt Instruments“, which is currently under development. These standards will have an international coverage, giving the opportunity for the EU taxonomy to get an international resonance. ECOS is heavily involved in the drafting of these standards, as well as an ISO taxonomy, striving to keep them as ambitious as possible.

Reach out to ECOS ! 

If you would like to give feedback on the EU taxonomy, please reach out to ECOS Programme Manager Mathilde Crêpy. Your input is valuable not only for the EU documents, but also for the ISO work, where we will be happy to relay your message.

ECOS is co-funded by the European Commission and EFTA

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