EU investors, insurers and financial institutions have a new way to assess the sustainability of their investments. Last week, the Greenwashing Observatory launched its independent scientific taxonomy, in direct response to the EU’s taxonomy system that some say is ineffective.

The EU taxonomy is a classification system that claims to give investors, companies and financial institutions a common language to identify the extent to which a specific investment, financial product or economic activity can be considered sustainable.

However, critics said the draft guidelines were not sufficiently science-based and that some aspects, such as gas power classification, tree burning, logging and nuclear power as long-lasting, could do more harm than good.

To create a more sustainable investment classification system, a coalition of experts and NGOs, including WWF, BirdLife International and Transport and Environment, formed the Observatory Against Greenwashing (OAG). The group aims to improve the EU taxonomy and provide investors with better scientific guidance on the sustainability of their investments.

What is Independent Scientific Taxonomy?

The independent scientific taxonomy is based on the EU taxonomy, but it only keeps the parts of the text that the researchers have found to be environmentally friendly. It also establishes more robust criteria for parts of the EU taxonomy that the OAG has deemed unscientific or harmful to the environment.

“The EU taxonomy was originally designed to eliminate greenwashing, but it has become another tool to deceive consumers,” Vedran Kordić, EU taxonomy coordinator at WWF Adria, said in a statement. . “The science-based taxonomy wants to succeed where the original taxonomy failed.: This will create rigorous criteria that financial institutions can use to properly assess what is green and what is not. According to the OAG, 1 in 3 activities deemed sustainable in the EU taxonomy actually cause planetary damage.

The EU Taxonomy was created in 2018 with a mission to inject capital into projects that would help the EU achieve the goals set out in its Green New Deal, including carbon neutrality by 2050. But the Critics argue that the EU taxonomy is misleading and fundamentally flawed due to the inclusion of natural gas and nuclear energy sources in its list of sustainable investment options.

“It’s not good enough. We need a better, science-based taxonomy,” said Luca Bonaccorsi, director of sustainable finance at Transport and Environment, a coalition of European NGOs working on transport issues, in a statement. “Now, the investment community has it.”

ESG regulations are growing in the EU and beyond

As controversy continues to surround ESG regulation of financial products in the EU taxonomy, the European Commission is calling for increased regulation of other consumer goods and services to address allegations of bogus greenwashing. The EU has drafted a legal proposal that would require companies to provide scientific evidence to substantiate sustainability claims such as “carbon neutral” or “contains recycled materials”. The draft rule also calls on EU countries to develop systems for assessing companies’ environmental claims. , including the imposition of penalties on companies that do not comply.

The expansion of ESG (environmental, social and governance) regulation is not limited to Europe. In the United States, the Inflation Reduction Act is expected to funnel more than $400 billion to cleantech companies over the next 10 years. Additionally, the U.S. Securities and Exchange Commission is expected to finally issue its climate disclosure regulations in April, several months later than expected. The new SEC rules, if published, would require companies to disclose their climate-related risks, as well as their greenhouse gas emissions and those of their supply chains.

Image credit: Alexandre Tsang/Unsplash

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