Lowering the ambition of the EU green taxonomy creates a cascading geopolitical risk. Weak European sustainable finance standards would lead to other major economies taking steps that would conflict with EU climate policy objectives and weaken Europe’s role as a leading regulator.
The EU taxonomy is a tool for defining which economic activities are ‘sustainable’. The taxonomy now also has the visibility and symbolic power to define the ‘green’ in European Green Deal. Although not preventing investments in harmful and polluting activities, it is a transparency tool preventing them from being marketed to investors as ‘green’.
By creating the green taxonomy the EU has set a bold new international finance norm, expanding its role as the premier global regulator. Around 20 other jurisdictions have now followed the EU’s example by creating their own taxonomies, including India, Russia, Indonesia and the United Arab Emirates.
However, the EU may now undermine its own regulatory process and principles. Asset owners are already expressing concerns that taxonomy criteria deviating from science could cause serious reputational damage and would not be a useful financial tool for market participants. Progressive elements of the financial sector are already pushing back and asking that the taxonomy remains a “green” list in order to be useful. There is a discussion on whether the EU is ceding its regulatory leadership role to China. This change would be entirely unnecessary because the existence of the EU green taxonomy does not prevent any kind of investment.
Asset owners are already expressing concerns that taxonomy criteria deviating from science could cause serious reputational damage and would not be a useful financial tool for market participant.
If the EU were to weaken its “green” list, other major economies would likely replicate this decision. This would be damaging to climate action overall, weakening global momentum towards achieving the goals of the Paris Agreement
This briefing makes the case for ensuring that the economic activities in the EU green taxonomy continue to be categorised in line with the principles set out in the Taxonomy Regulation. This would avoid reputational damage for Europe and the weakening of climate ambition internationally.