EU Taxonomy Regulation
The EU taxonomy creates a common language and set of standards to define what is actually green and sustainable.
What do I need to know?
The most central part of the EU Green Deal is the EU Taxonomy, which is the basis of all sustainable ESG reporting, based on "which activities can actually be described as sustainable or transitional activities on the path to sustainability."
The taxonomy includes the following 6 main areas:
- Climate change mitigation
- Climate change adaptation
- The sustainable use and protection of water and marine resources
- Transition to a circular economy
- Pollution prevention and control
- Protection and restoration of biodiversity and ecosystems
The first two areas entered into force on January 1, 2022, while the last four will enter into force on January 1, 2023.
The taxonomy aims to curb greenwashing by setting official standards for sustainability that make activities qualitatively comparable for investors and customers. It also lays the groundwork for an EU benchmark on climate change, an EU benchmark on the Paris Agreement, possibly a financial eco-label, and most importantly, EU Green Bonds, which are very low-cost bonds/loans with a much lower coupon than conventional bonds and a long maturity. The Green Bonds therefore mean a much cheaper and less expensive way of financing investments.
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