How will the EU’s system for classifying green investments work?

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How will the EU’s system for classifying green investments work? (FT)

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  • After reaching a compromise on the issue of nuclear energy, EU Governments and the European Parliament have now paved the way for the formal adoption of their new classification system for green investments in January 2020.

  • Both nuclear and gas technology will not count as green, but the new compromise reached this week leaves open the possibility for them to be classified as transition technologies.

  • Under the new rules, EU-listed companies with more than 500 employees will have to disclose the amount of revenues and capex that is based on environmentally friendly activities, while large fund managers will also have to calculate how much of their portfolios qualify for the green standard.

Analysis and Comments

  • As a reminder, this so-called “taxonomy for sustainable activities”, will split sustainable investments into three categories; “green” (renewables), “enabling” (e.g. steel production for rail infrastructure), and “transition” (not fully renewable but reducing emissions).

  • With the first rules coming into effect towards the end of next year, it is possible we will see quite a bit of change to sustainability rating/ ESG scoring systems. Just like in the example given in the FT shows (VW), we suspect there are likely to be many similar cases in which companies that currently score highly with ESG rating agencies will not be considered “green” within the taxonomy.

  • Regarding nuclear/gas companies, much depends on the “do no harm” principle under which exposed companies will be judged – however, we will have to wait for this principle to be established sometime next year.

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Why does my skeptical self suddenly feel that all those companies with 500 plus employees will suddenly have an official Greenwashing Department??

I think the definition of nuclear as "transition" might depend on who you are in the supply-environmental-disaster chain and which country you live in.


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