SFDR/Taxonomy - Regulation of "Green Finance"
Regulation of "Green Finance" aims at regulating financial operations in order to support sustainable development and especially the fight against global warming.
The two main regulations for “Green Finance” are:
Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 concerning the disclosure of information on sustainable development in the financial services sector (known as the SFDR Regulation).
Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2002 establishing a framework to facilitate sustainable investment and amending Regulation (EU) 2019/2088 (known as the Taxonomy Regulation).
“Green Finance” comprises all financial transactions that are intended to support the Environment and Energy Transition and to prevent environmental damage that could arise from economic activities, especially those carried out by businesses and financial players. The most important deadline (globally) is the Paris Agreement, implemented at COP21 in Paris in 2015 and entering into force in 2016, under which each country has committed to limit the increase in the average global temperature to below 2 °C. As a result of the signing of this agreement, the EU established an elaborate framework that constitutes its “Green Deal” for Europe. This consists in setting objectives and establishing the resources needed to achieve them.
Regulation (EU) 2020/852 (the “Taxonomy” Regulation) on the establishment of a framework intended to support sustainable investment was published in the Official Journal of the European Union on 22 June 2020. This new regulation establishes a unique classification system that aims to distinguish “green” investments transparently from other investments. Effective on 12 July 2020, the Taxonomy Regulation amends Regulation (EU) 2019/2088 (the “SFDR” Regulation) on the disclosure of information on sustainable development in the financial services sector. More specifically, the Taxonomy Regulation establishes criteria that determine whether an economic activity is an environmentally sustainable investment. Sustainable investment is an investment approach that aims to integrate environmental, social and governance factors (ESG) in investment decisions, in order to improve risk management and generate sustainable returns over the long term.
The six objectives included in the EU’s Taxonomy Regulation are the following:
1. Climate change mitigation
2. Climate change adaptation
3. Sustainable use and protection of water and marine resources
4. Transition to a circular economy, including waste prevention and recycling
5. Pollution prevention and control
6. Protection and restoration of biodiversity and ecosystems