EU package for sustainable finance

Tuesday 20 June 2023
Environment

The European Commission is not idle. In recent weeks it has been inundating us with more and more information on changes to regulations covering sustainable development, and in particular those relating to sustainable finance.

In mid-June of this year, the European Commission proposed a revision of the sustainable finance rules. The changes include the EU Taxonomy and ESG rating providers, among others. The new regulatory package is designed to strengthen the EU's framework for sustainable finance and to support companies and the financial sector while encouraging private financing of transitional projects and technologies.

What's new in the EU Taxonomy?

The package includes amendments to the EU Taxonomy Delegated Act for the following four taxonomic objectives:

  • sustainable use and protection of water and marine resources,

  • transition to a closed-loop economy,

  • prevention and control of pollution,

  • protection and restoration of biodiversity and ecosystems.

It clarifies the taxonomic criteria for economic activities making a significant contribution to at least one of the above environmental goals. In addition, amendments to the EU Delegated Act to the EU Climate Taxonomy were adopted, expanding it to include economic activities not previously included that contribute to climate change mitigation and adaptation. This is particularly true for the manufacturing and transportation sectors. With these changes, the delegated acts to the EU Taxonomy will now cover activities and related criteria for all six environmental objectives included in Article 9 of the EU Taxonomy, making it easier for them to report and demonstrate the taxonomy of their activities.

Changes in ESG ratings

ESG ratings provide investors and financial institutions with information on, for example, investment strategies and risk management in terms of ESG factors. The new rules are intended to increase the reliability of ESG rating providers and thus improve the quality and reliability of data from them. From the entry into force of the changes included in the package, rating providers will be obliged to use objective and uniform rating methodologies. Their activities in this regard will be authorized and supervised by the European Securities and Markets Authority (ESMA). This is expected to have a positive impact on data quality and ensure the integrity and transparency of ESG ratings performance, which will simultaneously translate into better data comparability in the sustainable investment market.

The delegated acts for the EU Taxonomy will soon be made available in all official languages of the European Union and will be submitted to the European Parliament and the EU Council for scrutiny. The new legislation is expected to enter into force on January 1, 2024. For the legislative proposal on ESG rating providers, the European Commission will soon start negotiations with the European Parliament and the EU Council.

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