25th May 2022

Chief EU advisor warns of 'transition-wash' on taxonomy

  • The EU needs to be able to better differentiate green investments from other dirtier undertakings (Photo: Skaja Lee)
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The European Union should update its green investment rulebook, to make sure EU companies move towards sustainable production methods, Nathan Fabian, the European Commission's chief scientific advisor said on Monday (28 March).

The so-called taxonomy for sustainable investments is the classification system meant to channel investment into environmentally-sustainable sectors.

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It forms the financial backbone of the EU's Green Deal climate policies, but it has come under fire recently after the commission decided to also label some gas and nuclear energy projects as green investments.

In a report to be published on Tuesday, , the commission's chief scientific adviser presented a new labelling system with three colours — red, amber and green — to distinguish more clearly environmentally-harmful economic activities [red], from transitional [amber] and sustainable [green] activities.

"Without clear coherent definitions, there is a growing risk of 'transition-wash'," Fabian said, referring to a decision by the commission in February to label gas and nuclear energy as green investments.

However, some criticised this new proposal — to have a more differentiated system — as too ambitious.

"We are well past the point of only increasing transparency for investors. The platform seems to try to impose its own moral code on society by dividing the entire world into good and bad," Markus Ferber, MEP for the centre-right European People's Party (EPP) party said on Monday.

But Nancy Saich, chief climate expert for the European Investment Bank (EIB), who helped write the report, said the red-amber-green "stoplight" system would provide the necessary "clarity to investors."

"It is not just about 'green and not green'," Saich said. "The inclusion of amber [and red] would show how much the economy still needs to do to move away from really harmful levels of performance."

She also said the stoplight classification system should be extended to all environmental goals. In its current iteration, the taxonomy prioritises emissions-reduction.

In the future, a green label will have to include proof the company is on track with all environmental goals as defined under Green Deal, the EU's landmark climate policy.

These include sustainable land and water use; pollution and the protection of biodiversity and ecosystems and climate adaptation, which means companies need to be prepared to handle the effects of a changing environment like floods, rising sea levels, droughts or fire.

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