5 reasons why the EU taxonomy is driving the climate transformation of the economy!

So-called “green” investments and sustainable business models are at the top of the agenda in business and politics today - and most people agree that the trend towards sustainable investment offers great opportunities for a climate-compatible economy!

But how can the financial sector become sustainable?

The EU taxonomy as a standard for sustainable economic activities

In response to this question, the European Union has developed a framework that will come into force at the end of 2021 as the EU Taxonomy. This is a classification system that helps actors in the financial system to recognize green investments. Why is such a classification important?

For a long time, there was no system to determine which financial products are sustainable and which are not. As a scientifically based instrument, the regulation now contains criteria for determining environmentally sustainable economic activities and clear reference values for low-carbon investments. This is new! The EU taxonomy is intended to promote private investment in green and sustainable products and make a decisive contribution to the European Green Deal.

When can an economic activity be considered sustainable?

The question for companies is therefore: How do I ensure that my company operates in a sustainable and climate-compatible manner in order to attract investment and customer relationships and at the same time eliminate the risk of a lack of investment or being penalized on the market? According to the new taxonomy, economic activities are considered sustainable if they contribute directly to meeting the EU environmental targets or help to achieve at least one of the environmental targets, such as data services to optimize the management of renewable energy sources. In doing so, none of the other environmental objectives may be significantly impaired.

Conclusion: The EU taxonomy actually makes the sustainability and climate compatibility of economic activities and financial products measurable. This makes sustainable companies and investments increasingly interesting for investors and promotes them in the medium term.

But still sounds complicated? Find out below why the EU taxonomy has the potential to change things in the economy!

5 reasons why the EU taxonomy is revolutionary for the economy and climate:

1. the EU taxonomy is driving the climate transformation!

In order to create a climate-neutral economy across the EU by 2050 at the latest, we need far-reaching, long-term and sustainable changes in various sectors such as industry, transportation, energy and mobility. Investments play a major role in this. Over the next decade, we need to invest around 350 billion euros in climate solutions, i.e. in products and services that actively contribute to a drastic reduction in CO2e in order to achieve the EU's climate targets as quickly as possible.

2. promote green investments!

The EU taxonomy provides the necessary guidelines and regulations to promote sustainable investments and climate-compatible purchasing decisions. It provides the tools that have been lacking to date and creates incentives to increasingly channel capital flows into sustainable economic activities. More specifically, financial market participants are obliged to record a proportion of environmentally sustainable investments in accordance with the regulation's criteria. The sustainability criteria will enable investors and budget managers to quickly identify sustainable investments.

In future, financial products can be divided into 3 different categories that indicate the degree of sustainability:

1. Environmentally sustainable activities (“sustainable activities”)

2. Activities that enable a contribution to climate goals (“enabling activities”)

3. Transitional activities, which are in the process of transitioning to sustainable production

3. Create transparency!

The regulation also offers a proposed directive on companies' reporting on their own climate compatibility. This is intended to provide investors and decision-makers with comparable and reliable information on sustainability and ensure transparency through disclosure obligations for companies and financial market participants. The taxonomy contains a detailed description of what a sustainability report must include and thus enables transparency and comparable data. To this end, large capital market-oriented companies with more than 500 employees will be obliged to provide information on the percentage of sustainable activities in turnover and investments from the reports for the 2021 financial year onwards.

4. Avoid greenwashing!

As a framework for sustainability in business activities, the taxonomy provides a clear guideline for climate-friendly action and thus prevents companies from getting lost in individual standards for sustainable action. It also allows investors and customers to view companies more critically. In this way, greenwashing can be uncovered and prevented through credible and trustworthy classification of financial products.

5. Seize the EU taxonomy as an opportunity!

The second side of the coin is clearly the new expense, bureaucracy and fears of not being able to meet the requirements. Although the EU taxonomy puts pressure on companies, they should not fear losing their profitability. Instead, forward-looking companies can now seize the opportunity to shape their own activities in line with the EU sustainability goals and enable a climate-compatible future. The first step is a status quo analysis, which enables companies to record their own climate performance according to EU standards, identify strengths and potentials and derive active fields of action. The simplest and most cost-effective way to do this is our CLIMATE Readiness Check, which offers an uncomplicated introduction to the new EU taxonomy. Simply request a demo and arrange a meeting!

We can see that the climate transformation is in full swing! Sustainability is becoming one of the most important goals and key drivers of transformation, especially in the business world. In order to be fit for the future as a company, we need to act now! Let's seize the opportunity now and invest in a green future!

Would you like to find out more about how THE CLIMATE CHOICE software tools can support your company in its climate transformation? Then get in touch with us.

Or find out more about how current policies are driving climate transformation here!