Aiming for EUR 175 billion to EUR 290 billion of additional annual private sector investments in a low-carbon economy, the European Commission presented their Action Plan on Sustainable Finance last year.  A Technical Expert Group is now working hard to bring this plan into action. One of its main tasks is to come up with a taxonomy for sustainable investment, or a "harmonised classification system for investments" that "provides market participants and consumers with a common understanding and a common language of which economic activities can unambiguously be considered environmentally sustainable."

A clear cutoff point between sustainable and non-sustainable economic sectors will enable clear-cut valuation of sustainable investments, portfolios and projects. Many of the sectors addressed in the taxonomy depend on both public and private investments, making the taxonomy highly relevant to sustainable public procurement and instruments that valuate the externalities of investments in infrastructure (see IISD’s SAVi assessment methodology).

Financial market participants all over the globe are following the development of an EU taxonomy. If it delivers, it will pave the way for a global shift of billions from unsustainable to sustainable investments, contributing to Sustainable Development Goals and the Paris Agreement objectives.

The ongoing consultation (deadline February 22) focuses on usability of the taxonomy, but leaves open two important questions: will this taxonomy push the transition towards a low-carbon economy, or will it provide us with a list of the least-bad investments in a rigid economic model?

For more information, see https://ec.europa.eu/info/publications/sustainable-finance-taxonomy_en