The transition to a climate-neutral, sustainable economy by 2050 presents new opportunities for businesses and citizens across the EU. There are also challenges associated with this transition, especially when it comes to complying with new reporting and disclosure requirements. It is estimated that Europe will need an additional investment of €350 billion per year this decade to reduce emissions by 2030. in energy systems alone, and €130 billion to achieve other environmental goals.
Therefore, it is necessary to align all sources of funding – public and private, national and multilateral – to achieve the European Green Deal. The EU’s Sustainable Finance Framework has a key role to play in supporting businesses and the financial sector against the challenges ahead, while also encouraging private financing for transformational projects and technologies.
The European Commission, with an eye on the EU’s sustainable financing framework, has unveiled a new package of measures to boost investment for a sustainable future. It is intended to ensure that the sustainable financing framework works for companies that want to invest in the sustainability transition. It also aims to facilitate the use of the Sustainable Financing Framework, thereby continuing to contribute effectively to the goals of the European Green Deal.
EU framework for sustainable financing – delegated act on EU systematics
A cornerstone of the EU’s sustainable financing framework and an important tool to ensure market transparency and help direct investment toward economic activities necessary for the green transition is the EU’s Sustainability Systematics. As part of efforts to strengthen the EU’s sustainable financing framework, the EC has approved a new set of criteria for EU systematics. They apply to those economic activities that make a significant contribution to one or more of the non-climate-related environmental goals, which include:
- Sustainable use and protection of water and marine resources;
- The transition to a closed-loop economy;
- Pollution prevention and control;
- Protection and restoration of biodiversity and ecosystems.
To this end, the European Commission has adopted targeted amendments to the Delegated Act on EU Climate Sustainability Systematics. They are increasing the number of economic activities that contribute to climate change mitigation and adaptation, particularly in the manufacturing and transportation sectors. The inclusion of more economic activities, covering all six environmental goals, and thus more economic sectors and businesses, will expand the usefulness and potential of the EU’s sustainability systematics in increasing sustainable investment in the EU.
EU Sustainable Finance Framework – Proposal for a Regulation on Environmental, Social Policy and Corporate Governance ESG Rating Providers
The European Commission is proposing a regulation to improve the credibility and transparency of ESG rating activities. ESG ratings play an important role in the EU sustainable finance market. They provide investors and financial institutions with important information on investment strategies and risk management regarding ESG factors. New organizational rules and clear regulations to prevent conflicts of interest will increase the integrity of ESG rating providers and enable investors to make more informed decisions about sustainable investments.
EU framework for sustainable financing – facilitating transition financing
The package of measures presented also shows how EU law can be used effectively to finance the transition. The recommendations are intended to provide guidance and practical examples for businesses and the financial sector. They are also to show how they can use the various tools of the EU’s Sustainable Financing Framework to target investments for transformation and manage the risks associated with climate change and environmental degradation. The goal is to facilitate transition financing, not only for companies that already have a solid sustainability track record, but also for those that are in entry-level situations and have credible plans or goals to improve sustainability performance.