In committing to the Sustainable Development Goals and climate-related goals through the Paris Agreement, the EU and its Member States endorsed a direction for sustainable growth.

These goals provide signals to corporations and investors about future economic trends, investment opportunities and risks, but it is only the alignment of public policies to the goals that will encourage capital markets to re-orient capital flows.

Through financing or investments and through the stewardship of investments, investors will influence the decisions taken by corporations and other entities. This chain of influence requires translation of policy goals into frameworks that the investors and managers of capital can respond to. The EU Taxonomy is one example of such a framework: a list of economic activities assessed and classified based on their contribution to EU sustainability related policy objectives.

The EU Taxonomy is an implementation tool that can enable capital markets to identify and respond to investment opportunities that contribute to environmental policy objectives.

The Taxonomy proposed in [1] is readily useful to investors, but the benefits of widespread use of the Taxonomy as a common language and reference point for markets, requires transparency by investors and companies alike. There is an important role for practical, disclosure-based regulation to help inform financial decision making and enable market participants to respond to the EU’s goals for financing sustainable growth.

Further information: [1] and [2]

1. EU Technical Expert Group on Sustainable Finance: Taxonomy - Final report of the Technical Expert Group on Sustainable Finance (March 9, 2020)
2. EU taxonomy for sustainable activities (Accessed Dec. 26, 2020)

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