Sustainable Finance and the EU Taxonomy Regulation – Hype or Hope?

Abstract

The European Commission has significantly increased its ambitions in regulating sustainable finance with its 2018 Action Plan “Financing sustainable growth”. One of the proposed Regulations, which has been adopted in 2020, is the Taxonomy Regulation. It builds the core of the action plan, by providing definitions to determine whether an economic activity is environmentally sustainable and therefore suitable for a sustainable investment. While most stakeholders agree that the lack of common definitions poses several difficulties and hampers the progress on sustainable finance, the solution found in the form of the Taxonomy Regulation is not uncontested. Concerns include its usability, especially in light of the available data and the accompanying costs, and the need for a more conclusive taxonomy, which also covers less and non-sustainable economic activities. This paper briefly outlines the structure of the Taxonomy Regulation itself, highlights the main points of debate and recent developments and suggests some adjustments, in particular the need for an extension of the Taxonomy in order to prevent “greenwashing”.