Enhancing EU’s Sustainable Finance, new Measures Unveiled.
The European Commission has presented a new package of measures aimed at developing and strengthening the foundations of the EU’s sustainable finance framework. The objective of the package is to ensure that this framework continues to support businesses and the financial sector, while encouraging private financing of transition projects and technologies. Specifically, the Commission is expanding the EU taxonomy with additional activities and proposing new rules for Environmental, Social, and Governance (ESG) rating agencies, which will enhance transparency in the sustainable investment market. The package aims to ensure that the sustainable finance framework works for companies that want to invest in their transition to sustainability. It also seeks to facilitate the use of the sustainable financing framework, effectively contributing to the goals of the European Green Deal.
Regulation on Transparency and Integrity of Environmental, Social, and Governance Ratings:
ESG ratings play a crucial role in the European sustainable finance market by providing investors and financial institutions with information regarding investment strategies and risk management related to ESG factors. Currently, the ESG ratings market lacks transparency, and the Commission is proposing a regulation to improve the reliability and transparency of ESG rating activities. New organizational principles and clear rules on conflict of interest prevention will strengthen the integrity of ESG rating agency activities. These new rules will enable investors to make more informed decisions regarding sustainable investments. Additionally, the proposal will require ESG rating providers offering services to investors and businesses in the EU to be authorized and supervised by the European Securities and Markets Authority (ESMA). This will ensure the quality and reliability of their services, protecting investors and maintaining market integrity.
Delegated Acts of the EU Taxonomy:
The EU taxonomy is a cornerstone of the EU’s sustainable financing framework and an important market transparency tool that helps direct investments towards economic activities necessary for ecological transition. The Commission has provisionally approved a new set of EU taxonomy criteria for economic activities that substantially contribute to one or more non-climate environmental objectives, including sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, and biodiversity and ecosystem protection and restoration. Additionally, the Commission has adopted targeted amendments.
In summary, this new package of EU sustainable finance measures aims to strengthen the existing framework by expanding the EU taxonomy and proposing new rules for ESG rating agencies. These initiatives are intended to support businesses in their transition to sustainability, facilitate the use of the sustainable financing framework, and effectively contribute to the goals of the European Green Deal.