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EU package drives the transition towards sustainable finance

Marie Baumgarts and Anne Kristin Kästner
Marie Baumgarts and Anne Kristin Kästner

On Tuesday, the European Commission presented a package of measures to drive the transition to a sustainable economy. It consists of a strategic action plan, a standard for green bonds and detailed guidelines for companies' taxonomy reporting.

“The news released in the Commission's July package is just one part of the sustainability journey that began five years ago. Green will be the new black for many years to come, so it is just as good to get into the context today to understand the future”, says Marie Baumgarts, Head of Sustainability Regulatory Affairs at SEB.

“It is roadmap of actions required to ensure that the financial system will support the transition. It complements the EU action plan from 2018 and contains a number of new measures and policies to cover gaps in the existing regulations, says Anne Kristin Kästner, Sustainable Finance Specialist.The first part of the July package is a Renewed Strategy for Sustainable Finance.

The package also includes a proposal for a uniform green bond standard within the EU.

“It will be the first common standard for green bonds in the EU. It will be fully taxonomy aligned, which means that 100 percent of the proceeds needs to go environmentally sustainable projects according to the definitions in the taxonomy.. The proposal still needs to go through the European Parliament and the European Council. says Anne Kristin Kästner.

Taxonomy reporting

The third part of the package, which currently has the most direct impact on companies and banks, is a delegated act for the Taxonomy Regulation.

“It explains how financial and non-financial companies should report according to the taxonomy, exactly what key figures should be reported, how they should be calculated and when it should take place”.

Non-financial corporations will need to report the proportion of their turnover, operating expenses and capital expenditures that are taxonomy aligned. Financial companies must report the share of credits that are taxonomy aligned (Green Asset Ratio) and the share of investments that are aligned(Green Investment Ratio).

“The implementation will take place in two steps. In the first year, companies only need to report how much of their business that falls within the scope of the taxonomy (taxonomy eligibility). In year two, they will also measure and report the outcome (taxonomy alignment), i.e. how large part of their eligible business that also are taxonomy aligned, says Anne Kristin Kästner.

For banks, they have two years to go before they need to report on how large part of their credits and investments that are taxonomy aligned.

The requirement for mandatory taxonomy reporting currently covers all companies in the EU with more than 500 employees.

Read more about the July package in a newsletter from SEB

SEB Research (sebgroup.com)