EU Comission launches a new package within the sustainable finance framework

A couple of weeks ago, the EU Commission presented a new package of regulatory initiatives to strengthen the foundations of EU's sustainable finance framework. The objective of the package is to ensure the ongoing effectiveness of EU's sustainable finance, with a focus on supporting companies and the financial sector in related sustainability matters. Simultaneously, it aims to promote private funding of green transition projects and technologies.

In summary, the package consists of the following parts:

ESG ratings are vital in the EU sustainable finance market as they offer valuable information to investors and financial institutions, guiding them in areas like investment strategies and ESG risk management. However, the ESG ratings market currently lacks transparency, prompting the EU Commission to propose a Regulation aimed at enforcing the reliability and transparency of ESG ratings activities. The proposed rules will establish clear guidelines, including organizational principles and conflict of interest prevention measures, to guarantee the integrity of ESG rating providers. By implementing these regulations, investors will be empowered to make well-informed decisions concerning sustainable investments. Additionally, the proposal mandates that ESG rating providers serving investors and companies within the EU to apply for authorization and undergo supervision from ESMA.

Read more on the proposed Regulation here.

The EU Taxonomy is the cornerstone of the EU’s sustainable finance framework and an important market transparency vehicle, enabling direct investments to the most crucial economic activities in order to accomplish a green transition.

The Taxonomy is a large Regulation covering a number of sectors and economic activities. In addition to the Taxonomy, EU have already adopted a few Commission Delegated Regulations (so called 'Level II-regulations') to drive the implementation forward. Some additional Level II Regulations are now included in the new package, providing a substantial contribution to one or more of the non-climate environmental objectives in the Taxonomy, namely:

• 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.

In addition, the EU Commission has made specific changes to already adopted Level II Regulation: the EU Taxonomy Climate Delegated Act, with amendments focus on including economic activities in the manufacturing and transport sectors.

Read the newly adopted EU Taxonomy Delegated Acts here.

The EU's transition to a climate-neutral and sustainable economy by 2050 presents opportunities for EU companies and citizens. While many corporations and investors have already embraced sustainability, they encounter challenges in meeting new disclosure and reporting obligations. To address these issues, the EU Commission has released recommendations on transition finance. These recommendations offer guidance and practical examples to companies and the financial sector, illustrating how they can voluntarily leverage the tools within the EU sustainable finance framework. The aim is to direct investments towards the green transition and effectively manage risks associated with climate change and environmental degradation.

Read the EU Commission's recommendations on transition finance here.

The EU Sustainable Finance Framework is a comprehensive set of regulations, guidelines, and initiatives (such as the Taxonomy and Disclosure Regulation), introduced by the European Union to promote sustainable finance and facilitate the transition towards a climate-neutral and sustainable economy. It aims to align financial flows with environmental, social, and governance (ESG) objectives by integrating sustainability considerations into investment decisions and providing transparency to investors and the public.

Learn more about the different initiatives within EU's Sutainable Finance Framework here.