Assessing environmentally sustainable investments

SUMMARY OF:

Regulation (EU) 2020/852 on establishing a framework to facilitate sustainable investment

WHAT IS THE AIM OF THE REGULATION?

It aims to inform investors on whether an economic activity is environmentally sustainable by setting common EU-wide criteria.
It amends Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial sector.

KEY POINTS

Action plan on sustainable growth

This ‘taxonomy’ regulation is one of a number of actions designed to help achieve the three objectives of the action plan, which are:

to reorient capital flows towards sustainable investments to achieve sustainable and inclusive growth;
to manage financial risks stemming from climate change, natural disasters, environmental degradation and social issues;
to foster transparency and a long-term outlook for financial and economic activity.

Criteria

The regulation sets out the following criteria to be applied by the EU and EU Member States to decide whether an economic activity is environmentally sustainable.

It contributes substantially to one or more of the environmental objectives set out in the regulation.
It does not significantly harm any of these environmental objectives.
It is carried out in compliance with the minimum safeguards set out in the regulation.
It complies with technical screening criteria set up by the European Commission in accordance with the regulation.

Environmental objectives

For the purpose of the regulation, the environmental objectives are:

climate change mitigation;
climate change adaptation;
the sustainable use and protection of water and marine resources;
the transition to a circular economy;
pollution prevention and control;
the protection and restoration of biodiversity and ecosystems.

The regulation sets out the steps that an economic activity must take to make a substantial contribution or to not significantly harm any of these objectives.

Activity list

The regulation requires the Commission to set out a list of environmentally sustainable activities by defining technical screening criteria for each environmental objective. These criteria are established by means of delegated acts.

The Climate Delegated Act (Delegated Regulation (EU) 2021/2139) includes technical screening criteria for economic activities that substantially contribute to the objectives of climate change mitigation and climate change adaptation. It has applied since 1 January 2022.
The Disclosures Delegated Act (Delegated Regulation (EU) 2021/2178) supplements Article 8 of the taxonomy regulation. It specifies the content, methodology and presentation of information to be disclosed by financial and non-financial undertakings concerning the proportion of environmentally sustainable economic activities in their business, investments or lending activities. It has applied since1 January 2022.
The Complementary Climate Delegated Act (Delegated Regulation (EU) 2022/1214) amends Delegated Regulations (EU) 2021/2139 and (EU) 2021/2178, including, under strict conditions, specific nuclear and gas energy activities in the list of economic activities covered by the EU taxonomy. The criteria for the specific gas and nuclear activities are in line with EU climate and environmental objectives and will help accelerate the shift from solid or liquid fossil fuels, including coal, towards a climate-neutral future. It will apply as of January 2023.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 12 July 2020.

BACKGROUND

For further information, see:

EU taxonomy for sustainable activities (European Commission)
Financing the climate transition (Council of the European Union).

MAIN DOCUMENT

Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (OJ L 198, 22.6.2020, pp. 13–43).