The legislation, known as the EU sustainable finance “taxonomy”, will restrict which investments can be classed as green and force providers of financial products to disclose which investments meet the criteria, from the end of 2021.
The taxonomy will create a common language that investors can refer to when investing in projects and economic activities that have a substantial positive impact on the climate and the environment.
It stipulates that a number of environmental objectives should be considered when evaluating how sustainable an economic activity is.
A “do-no-significant-harm” principle aims to guarantee that energy technologies do no harm to other objectives, including the economy, or tackling issues like waste management, biodiversity, water systems and pollution.
A March report by a European Commission technical expert group omitted nuclear energy from its recommendations on the taxonomy rules, saying it was unable to conclude that the industry’s value chain does not cause significant harm to other environmental objectives. The nuclear industry and scientific organisations are calling for this to be reviewed.
The expert group’s report recommended that more extensive technical work is done on the do no significant harm aspects of nuclear energy. It said the work should be done by a team with in-depth technical expertise on nuclear life cycle technologies.
The Commission said the the legislation will enter into force after publication in the Official Journal. It also said it will regularly update screening criteria used to assess activities that might be considered transition and enabling activities for the move towards carbon neutrality. By 31 December 2021, it should review them and define criteria to identify activities that have a significant negative impact.
The endorsement by the European Parliament marks the final step of the adoption process of the political agreement reached on 17 December 2019. The agreement says transitional activities must show a credible path towards climate neutrality, and screening criteria should be adjusted accordingly at regular intervals.
The agreement refers to “low-carbon alternatives”, but makes no specific mention of particular energy technologies.
Establishing clear European green criteria for investors is seen as key to raising more public and private funding so that the EU can become carbon neutral by 2050 as set out in Europe’s Green Deal as well as to prevent “greenwashing”, the process of conveying a false impression or providing misleading information about how products are environmentally sound.
Europe needs around €260bn per year in extra investment to achieve its 2030 climate and energy targets, according to Commission estimates.