Europe: European Union Aims for Clarity in Murky World of Sustainable Investing

The European Union put forward a package of measures that took aim at the patchy data available around sustainable investing, seen as one of the fast-growing market’s biggest problems.

The bloc’s executive arm in Brussels proposed making companies for the first time report standardized information about their impact on their environment, and social metrics, such as how they treat their employees.

The EU wants the rules to apply to both publicly-listed firms in Europe and large private companies, a total of nearly 50,000 entities. Credit institutions, including the large U.S. banks that have subsidiaries in the EU, would also have to comply. The bloc also unveiled its classification system that will define green investments and said the taxonomy will apply from next year.

If passed, companies in the EU will have to start disclosing sustainability metrics, similarly to financial reporting. The taxonomy is expected to be used as a tool to cut down on “greenwashing,” a term that describes an exaggeration of sustainability claims. The initial version of the taxonomy labels bioenergy as green but doesn’t include nuclear energy and natural gas, although this may be revised.

Sustainability has emerged as a hot topic in finance. It is commonly known by the acronym ESG, which stands for environmental, social and governance—three pillars on which companies are judged.

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