Milla Kouri, Financial Specialist:
Classification of sustainable investments making headway in the EU
If investors were able to compare the sustainability of different investments, they could contribute to mitigating climate change through the investment decisions they make. To facilitate such comparisons, the EU has devised a classification system for sustainable investments. During its Presidency of the Council of the EU, Finland has advanced the creation of the system.
On 25 September, Finland achieved an important milestone in establishing the classification system, as the member states reached political agreement on it. EU ambassadors gave the Finnish Presidency the mandate to initiate trilogue negotiations on the regulation proposal with the European Parliament and the European Commission.
Sustainable investments require capital
Mainstreaming sustainable finance plays an important role in achieving the objectives of the Paris Agreement on climate change. In order for the EU to achieve its climate and energy targets, the annual investment gap of nearly €180 billion must be bridged. Such a large gap cannot be filled by public funds alone; private capital and capital markets are needed to support the joint effort to mitigate climate change.
In order for capital to be channelled to more sustainable investments, investors must be able to assess the environmental impact of the investments. This is the aim of the EU action plan for financing sustainable growth, which includes the creation of a unified classification system for sustainable investments.
Minimum requirements for green investments
What exactly is a green investment? Different service providers use different methods to determine how green a financial product is. It is difficult for investors to ascertain whether a green equity fund is actually green or whether it is a case of greenwashing.
The EU classification system creates minimum requirements for green investments and standards for environmentally sustainable investments in the financial markets. For example, service providers could tell clients that a certain common fund complies with 60% of the criteria in the classification.
A uniform set of criteria and a uniform concept of sustainability will make things easier for investors, as they will be better able to compare green funds and other green investment products between service providers. Investors can then also have greater confidence that they are investing green and that they are involved in making the world more sustainable.
The topic will be discussed in Helsinki on 30–31 October at the Greener Finance for Sustainable Future conference organised by the Ministry of Finance and the Bank of Finland.
‘Greener Finance for Sustainable Future’ conference to tackle questions of sustainable finance (press release 16 October)
EU member states reach consensus on classification of sustainable investments (press release 25 September)
Sustainable finance: classification system for sustainability of investments (EU2019FI backgrounder)