European Classification of Green Activities


A strategy to get out of an absurd situation

What is the purpose of the classification of green activities?

The European Union has set three climate policy targets for 20301:

  • reduce greenhouse gas emissions by 40% compared
    with their 1990 levels;

  • achieve 32% of renewables in the energy mix;

  • reduce energy consumption by 32%.

Reaching these three targets will require an annual investment of € 200 billion by the private sector in Europe. As well as increasing awareness, investment requires the mobilisation of energy, so these investment flows must be channeled, by drafting a common understanding of the necessary investment spending, via a classification of green activities. This classification – on which all investors had an opportunity to express themselves until 15 February – could act as a basis for defining green fund certifications, but also as a standard in green obligations or a program for financing the energy transition by central banks.

How has this classification been devised?

To define the priorities, a Technical Expert Group2 began by defining green investments relative to the sectors that emit the most CO2: Electricity, gas and air conditioning (32%), Industry (23%), Agriculture (15%), Transport (14%) and Water supply and treatment (5%). For each of the various subsectors of these sectors, it defined maximum emission or energy consumption levels required to be eligible for green taxonomy. Solar energy, wind energy, intercity rail transport and reforestation (in compliance with FSC or PEFC standards) have already been systematically included in the taxonomy.

It should also be noted that the investments financed must not have a negative impact on the following 6 environmental issues: climate change mitigation, adaptation to climate change, sustainable use of water and maritime resources, transition to a circular economy, control and avoidance of pollution and protection of ecosystems.

What questions does this classification raise?

As Natixis’ Green Finance department shows3, this classification is problematic because:

  • it is static (it doesn’t take into account the necessary technological progress and colossal efforts required for the transition);

  • it is binary (a company is either green or not), instead of seeing how a company can become green;

  • numerous usual green financing sectors are not currently covered (what is the energy performance that defines a green building?).

What solution could provide a response to these issues?

The problem with this classification is that it assumes that the green economy already exists and just needs to be developed. Whilst this rigid approach may reassure consumers, it does not enable the transition and ‘greening’ of the economy strategies to be financed, which could lead to absurd results. Currently, this classification encourages the financing of hydrogenpowered vehicles but does not make it possible to finance the infrastructures required to transport hydrogen. Similarly, it encourages investors to finance the electrification of the rail network despite some of this electricity coming from coal.

Head of SRI – Humanis Gestion d’Actifs

A Doctor of Management Sciences, Grégory Schneider-Maunoury has been an SRI analyst for more than 15 years. He has been the Head of SRI at the Humanis Gestion d’Actifs asset management firm since 2008. A member of the SFAF French financial analysts’ association, he also lectures at Léonard de Vinci University.

1) European Commission website. 2018. (2) European Commission website. 2018. (3) Natixis Green and Sustainable Hub. September 2018.