Towards a deeper shade of green in Europe

By Vanora Bennett

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Climate finance experts unveil “green dictionary” and “add grammar”

The practical side of Europe’s green planning went on display today 12 March when the EU Taxonomy – a vast dictionary of definitions of exactly what constitutes genuine greening across the full range of real-life commercial applications – was discussed at a web-based stakeholder dialogue led by the climate experts who have spent two years designing it.

The Technical Expert Group on Sustainable Finance have in recent days also published both their report on the EU's classification of green economic activities – or taxonomy – and a report applying similar thinking to the issuance of green bonds funding green projects, the EU Green Bond Standard. Through these reports, investors and industry have for the first time been given a definition of what is “green”, rather than just “greenwashing”, or looking green. This will give a real boost to sustainable investments.

Thursday’s webinar replaces what before the outbreak of coronavirus had been intended to be a physical gathering in Brussels. It gives the technical experts – who hail from across civil society, academia, business and the finance sector, and assist the Commission in developing policies on sustainable finance - an opportunity to present and discuss their final reports.

This work provides the detailed technical knowledge that makes it possible to implement the €1 trillion EU Green Deal announced by European Commission boss Ursula von der Leyen in December - a roadmap with actions to boost the efficient use of resources by moving to a clean, circular economy restore biodiversity and cut pollution. The EU Green Deal outlines investments needed and financing tools available to achieve the ambition of climate neutrality by 2050, and explains how to ensure a just and inclusive transition.

The completion and presentation of the reports is a vital step in organising sustainable finance to make Europe climate neutral by 2050, Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said in a statement when they were published on 9 March:

“These reports … provide excellent input for us to develop our final standards on climate change mitigation and climate change adaptation. They will also help us establish EU green bond standards as part of broader measures to spur the take-up of sustainable finance in Europe.”

The report on taxonomy leads to the natural next step. The EBRD’s Carel Cronenberg, a member of the Technical Expert Group who has led work on defining criteria for the manufacturing industry, calls this “adding grammar” to the “green dictionary” of the EU Taxonomy.

The taxonomy report includes guidance on how companies and financial institutions can use it. The Commission will use this report as a basis to develop rules setting out the EU's classification of green activities for climate change mitigation and climate change adaptation. It will adopt the classifications for climate change mitigation and climate change adaptation in the form of Delegated Acts by the end of 2020, as set out in the Taxonomy Regulation.

Translating climate ambition into investments on the ground that actually reduce carbon emissions to a level compatible with the 2015 Paris Agreement’s goal to keep global warming to no more than 2C, or if possible a more ambitious 1.5C, requires practical - and brave - thinking in the next few years if carbon neutrality is to be achieved by 2050.

One example of why, given by the EBRD’s Cronenberg, is that much of the planning necessarily has to be not just about visibly clean and virtuous investments in “deep green” renewables projects, but also about helping the currently unsustainable parts of the economy transition towards lower carbon use.

European countries’ emissions – especially those where the EBRD works – include many areas high in carbon and in urgent need of transition. To be effective, any programme of decarbonisation must focus on substantially lower emissions in high-carbon sectors.

With the rules of green finance slowly taking shape, some green investors have fought shy of investing in sectors as counter-intuitive as steel or cement or chemical production or air travel or roads.

But having a reliable system of measurement should make it easier to understand the green value of these investments in a more sophisticated way – specifically, by making it clear that they offer big carbon emissions savings.

“Should we stop financing cement plants? I would say there is not an alternative for cement yet,” comments Cronenberg. “We will need a lot of cement in climate adaptation. So we’d better work with the cement sector to help them to decarbonise. And that’s why the EU Taxonomy specifically has developed criteria for those high-emitting sectors.”

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