Skip to main content Accessibility help

We use cookies to distinguish you from other users and to provide you with a better experience on our websites. Close this message to accept cookies or find out how to manage your cookie settings.

Close cookie message
×
Hostname: page-component-6bf8c574d5-nvqbz Total loading time: 0 Render date: 2025-03-04T14:55:26.690Z Has data issue: false hasContentIssue false

13 - The EU Taxonomy Regulation and the Prevention of Greenwashing

from Part III - Integrating Sustainability in Financial Markets Regulation

Published online by Cambridge University Press:  30 January 2025

By
Marleen Och
Edited by
Kern Alexander ,
Matteo Gargantini  and
Michele Siri
Kern Alexander
Affiliation:
University of Zurich
Matteo Gargantini
Affiliation:
University of Genoa
Michele Siri
Affiliation:
University of Genoa
Get access

Summary

The Taxonomy Regulation establishes common and science-based definitions to determine whether an economic activity is environmentally sustainable. It aims to make sustainable finance more accessible to investors, while also protecting them from false or misleading claims about a financial product’s sustainability. In doing so it shifts a large part of the burden to prevent greenwashing onto the legislator. This chapter therefore critically analyses the Taxonomy’s ability to protect investors from greenwashing and identifies a number of pitfalls. The market for sustainable financial products is rapidly growing, yet the Taxonomy so far only covers environmental sustainability in selected sectors. Gathering and disclosing the necessary environmental data can be challenging and costly and may discourage companies and financial market participants to offer Taxonomy-aligned products, possibly turning it into a niche product. The Taxonomy’s binary approach makes it difficult for investors to assess the sustainability of complex financial products and limits incentives for non-aligned companies to improve their performance. This chapter therefore argues for an extension of the Taxonomy that distinguishes between positive, intermediary and harmful activities and provides definitions for social and governance aspects of sustainability

Keywords

EU Taxonomy Regulationgreenwashingtaxonomy-compliant activitiesdisclosure obligationsstandardizationcomparability of dataaccessibility of data.
Type
Chapter
Information
The Cambridge Handbook of EU Sustainable Finance
Regulation, Supervision and Governance
 , pp. 357 - 380
Publisher: Cambridge University Press
Print publication year: 2025

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Adelphi and ISS ESG (2020), ‘European Sustainable Finance Survey’, available at: https://sustainablefinancesurvey.de.Google Scholar
Baer, M., Campiglio, E. and Deyris, J. (2021), ‘It Takes Two to Dance: Institutional Dynamics and Climate-Related Financial Policies’, Centre for Climate Change Economics and Policy Working Paper No. 384.Google Scholar
Bassen, A., Kordsachia, O., Tan, W. and Lopatta, K. (2022), ‘Revenue Alignment with the EU Taxonomy Regulation’, Working Paper.CrossRefGoogle Scholar
Berg, F., Koelbel, J. and Rigobon, R. (2022), ‘Aggregate confusion: The divergence of ESG ratings’, 26, 6 Review of Finance, 1315–1344.CrossRefGoogle Scholar
BEUC (Bureau Européen des Unions de Consommateurs) (2021), ‘EU green finance plans risk becoming greenwashing tool for climate-harming investments’, 21 April, Press Release, available at: https://bit.ly/3TfvuTE, accessed 1 September 2022.Google Scholar
Brakman Reiser, D. and Tucker, A. M. (2020), ‘Buyer beware: Variation and opacity in ESG and ESG index funds’, 41 Cardozo Law Review, 1921–2019.Google Scholar
Dumrose, M., Rink, S. and Eckert, J. (2022), ‘Disaggregating confusion? The EU Taxonomy and its relation to ESG rating’, 48 Finance Research Letters, 102928.CrossRefGoogle Scholar
EBA (European Banking Authority) (2019), ‘Action Plan on Sustainable Finance’, available at: https://bit.ly/3x7mJ6S.Google Scholar
EBA (European Banking Authority) (2022), ‘Discussion paper on the role of environmental risk in the prudential framework’, EBA/DP/2022/02, available at: https://bit.ly/3Kz2wdh.Google Scholar
EBA, ESMA, EIOPA (European Banking Authority/European Securities and Markets Authority/European Insurance and Occupational Pensions Authority) (2020), ‘Joint Consultation Paper ESG Disclosure’, available at: https://bit.ly/4cbDn4k.Google Scholar
ECB (European Central Bank) (2020), ‘Guide on climate-related and environmental risks: Supervisory expectations relating to risk management and disclosure’, available at: https://bit.ly/3VcY4pp.Google Scholar
EIB (European Investment Bank) (2020), ‘Energy Lending Policy – Supporting the energy transformation’, available at: https://bit.ly/4c8MCmk.Google Scholar
ESMA (European Securities and Markets Authority) (2019), ‘Technical Advice to the European Commission on Sustainability Considerations in the credit rating market’, available at: https://bit.ly/3ySiUTC.Google Scholar
Esposito, L., Mastromatteo, G. and Molocchi, A. (2020), ‘Extending “environment-risk weighted assets”: EU taxonomy and banking supervision’, 1, 3 Journal of Sustainable Finance & Investment, 1–19.Google Scholar
European Commission (2018), Action Plan: Financing Sustainable Growth, available at: https://bit.ly/497N6GU.Google Scholar
European Commission (2019a), Factsheet: Financing Sustainable Growth, available at: https://bit.ly/45jl1fw.Google Scholar
European Commission (2019b), The European Green Deal, available at: https://bit.ly/3yTHBiD.Google Scholar
European Commission (2020a), Consultation on the Renewed Sustainable Finance Strategy, available at: https://bit.ly/3uYg0LB, accessed 1 September 2022.Google Scholar
European Commission (2020b), ‘Amended proposal for a Regulation on establishing the framework for achieving climate neutrality and amending Regulation (EU) 2018/1999 (European Climate Law)’, available at: https://bit.ly/3xbBNQX.Google Scholar
European Commission (2020c), ‘Communication from the Commission to the European Parliament pursuant to Article 294(6) TFEU concerning the position of the Council on the adoption of the Taxonomy Regulation’, available at: https://bit.ly/3KAwoGe.Google Scholar
European Commission (2021a), ‘Proposal for a Regulation establishing a Recovery and Resilience Facility’, available at: https://bit.ly/4cadIZx.Google Scholar
European Commission (2021b), ‘Strategy for Financing the Transition to a Sustainable Economy’, available at: https://bit.ly/3VxrT5y.Google Scholar
European Commission (2021c), ‘Proposal for a Regulation on European green bonds’, available at: https://bit.ly/4bPQJDl.Google Scholar
European Commission (2021d), ‘EU Taxonomy for sustainable activities’, available at: https://bit.ly/43coU4D, accessed 1 September 2022.Google Scholar
European Commission (2021e), ‘Proposal for a Directive amending Directive 2013/34/EU, Directive 2004/109/EC, Directive 2006/43/EC and Regulation (EU) No 537/2014, as regards corporate sustainability reporting’, available at: https://bit.ly/3X8FMs9.Google Scholar
European Commission (2021f), ‘Sustainable Finance Package’, available at: https://bit.ly/3v1Dm2K, accessed 1 September 2022.Google Scholar
European Commission (2021g), ‘Proposal for a Regulation establishing a European single access point providing centralised access to publicly available information of relevance to financial services, capital markets and sustainability’, available at: https://bit.ly/4c8b2M6.Google Scholar
European Commission (2022), ‘Climate Delegated Act – Explanatory Memorandum’, available at: https://bit.ly/3yUQOHp.Google Scholar
European Commission and Environmental Resources Management (ERM) (2021), ‘Study on sustainability-related ratings, data and research’, available at: https://bit.ly/3PbGksk, accessed 1 July 2022.Google Scholar
Eurosif (2021), Fostering Investor Impact Placing it at the Heart of Sustainable Finance, Eurosif Report, available at: https://bit.ly/49I10QX, accessed 1 September 2022.Google Scholar
GFMA, BCG (Global Financial Markets Association/Boston Consulting Group) (2020), ‘Climate Finance Markets and the Real Economy’, available at: https://bit.ly/3V4ocod.Google Scholar
Gortsos, C. V. (2020), ‘The Taxonomy Regulation: more important than just as an element of the Capital Market Union’, EBI Working Paper Series, 16 December.CrossRefGoogle Scholar
Greenpeace (2021), ‘Leak: polluters gut EU green finance rules’, 22 March, available at: https://bit.ly/3V7WLKf, accessed 1 September 2022.Google Scholar
Hache, F. (2020), Sustainable Finance 2.0: The Securitization of Climate and Biodiversity Policies, Green Finance Observatory Policy Report, March.CrossRefGoogle Scholar
Hong, H., Karolyi, G. A. and Scheinkman, J. A. (2020), ‘Climate finance’, 33 The Review of Financial Studies, 1011.CrossRefGoogle Scholar
Klasa, A., Temple-West, P., Palma, S. and Miller, J. (2022), ‘ESG’s legal showdown: “There’s nothing to suggest DWS is a one off”’, Financial Times, available at: https://on.ft.com/3wTuQ6r, accessed 1 September 2022.Google Scholar
Maijoor, S. (2020), ‘Sustainable financial markets: translating changing risks and investor preferences into regulatory action’, European Securities and Markets Authority, 12 February, available at: https://bit.ly/3VwhDdN.Google Scholar
Och, M. (2020), Sustainable Finance and the EU Taxonomy Regulation – Hype or Hope?’, Jan Ronse Institute for Company & Financial Law Working Paper No. 2020/05, November, available at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3738255.Google Scholar
OECD (Organisation for Economic Co-operation and Development) (2020), Developing Sustainable Finance Definitions and Taxonomies, Green Finance and Investment (Paris: OECD Publishing).Google Scholar
Platform on Sustainable Finance (2021a), Transition Finance Report, March, available at: https://bit.ly/3VeQN8D.Google Scholar
Platform on Sustainable Finance (2021b), Draft Report by Subgroup 4: Social Taxonomy, available at: https://bit.ly/3VeQN8D.Google Scholar
Platform on Sustainable Finance (2022a), The Extended Environmental Taxonomy: Final Report on Taxonomy extension options supporting a sustainable transition, March, available at: https://bit.ly/4c2P6SM.Google Scholar
Platform on Sustainable Finance (2022b), ‘Response to the Complementary Delegated Act’, 21 January, available at: https://bit.ly/3XgfrbO.Google Scholar
Schoenmaker, D. and Schramade, W. (2019), Principles of Sustainable Finance (Oxford: Oxford University Press).Google Scholar
Schwartzkopff, F. (2021), ‘Fund Managers Face Delays as EU Greenwash Rules Hit Hurdles’, Bloomberg, November 22, available at: https://bloom.bg/3wRqMDI.Google Scholar
Siri, M. and Zhu, S. (2019), ‘Will the EU Commission successfully integrate sustainability risks and factors in the Investor Protection Regime? A research agenda’, 11 Sustainability, 6292.CrossRefGoogle Scholar
Sweatman, P. and Hessenius, M. (2020), ‘Applying the EU Taxonomy’, Lessons from the Front Line, Climate Strategy & Partners, Climate & Company.Google Scholar
TEG (EU Technical Expert Group on Sustainable Finance) (2019), Financing a Sustainable European Economy. Taxonomy. Technical Report, European Commission, Brussels, June, available at: https://bit.ly/3OZW7dO.Google Scholar
TEG (EU Technical Expert Group on Sustainable Finance) (2020), Taxonomy: Final Report of the Technical Expert Group on Sustainable Finance, March, available at: https://bit.ly/3VhbIb6.Google Scholar
Zachmann, G. (2022), ‘Europe’s sustainable taxonomy is a sideshow’, Bruegel Blog, available at: https://bit.ly/48JVNa0, accessed 1 September 2022.Google Scholar
Zetzsche, D. A. and Anker-Sørensen, L. (2021), ‘Regulating Sustainable Finance in the Dark’, EBI Working Paper Series 2021, No. 97.Google Scholar

Save book to Kindle

To save this book to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Available formats
×

Save book to Dropbox

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Dropbox.

Available formats
×

Save book to Google Drive

To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

Available formats
×