Is the EU’s green finance push on the verge of collapse?

A three-year effort to drive finance into the green economy by classifying certain types of investments as sustainable is in danger of being seriously compromised, environmental and consumer organisations have said. Six groups have withdrawn from an EU expert body in protest at the greenwashing of forestry and biomass projects. The groups expect a response in the coming days from the EU Commission to its demands to preserve the integrity of the taxonomy law, which is supposed to be based on scientific evidence.

The Commission decided to classify destructive forestry practices and highly-emitting types of biomass as green, having faced intense political pressure and the threat of vetoes from a number of EU governments. It labelled ships burning dirty bunker fuel and buses running on fossil gas as sustainable investments. This went against the recommendations of the expert group. The body is composed of academics, scientists and environmentalists - but also industry representatives.

T&E’s director of sustainable finance, Luca Bonaccorsi, said: “The taxonomy law was supposed to be the gold standard of sustainable finance. But the result has been the greenwashing of dirty cargo ships, gas buses, and logging and burning trees. Environmentalists will not come back to the process until the Commission comes back to science.”

“Should civil society be forced to abandon the project for good, its legitimacy and credibility as a tool to fight greenwashing would be seriously compromised. We have invested a huge amount of work to support and develop the taxonomy, so for us this would be particularly painful.”

NGOs Transport & Environment, WWF European Policy Office, BirdLife Europe and Central Asia, consumer group BEUC, and eco-standards advocates ECOS have suspended their participation in the expert group as they cannot stand over criteria that would lead to greenwashing. They are demanding discussions with the Commission to establish rules that stop the scientific basis of the EU taxonomy law being compromised further. The chairperson of the expert group, Nathan Fabian, joined the organisations in calling for a revision of the rules.

The Taxonomy Regulation determines which financial investments can be labelled environmentally sustainable. The actual list of environmentally sustainable activities is being drawn up by the Commission and is supposed to be based on recommendations by the expert group of NGOs, financial market companies and EU agencies.

This month the Commission also published its Corporate Sustainability Reporting Directive proposal (NFRD reform). T&E welcomes the revised directive and the introduction of a reporting standard aligned with the Taxonomy Regulation. However, T&E and other expert NGOs are concerned that companies in ‘high risk’ sectors such as mining are excluded and not obliged to report on the sustainability of their business. Also, listed SMEs will be exempt for the first three years of the new law.