Giving Compass' Take:

• Nikki Wong reports that the EU Sustainable Finance Taxonomy is designed to prevent companies from "greenwashing" environmentally unfriendly business practices. 

• How can funders work to increase real corporate environmental responsibility? 

• Read about avoiding purpose-washing. 

The European Union (EU) has approved the implementation of common rules for sustainable investing that aim to clamp down on greenwash in the finance industry.

The EU Sustainable Finance Taxonomy is a classification system that standardises the labelling of sustainable financial products. Agreed last week by the European Parliament in Brussels, the new system consist of three levels of sustainability, labelled from brown to green, and includes a do-no-harm test. It will mean that investments in natural gas or nuclear energy can no longer be considered sustainable.

Its implementation allows for greater context to be placed around environmental data for both investors and companies.

In order to qualify as sustainable, a finance product such as a bond must satisfy several conditions. For instance, it must contribute to one of the EU’s environmental objectives, must not cause harm to any of the EU environmental objectives, and must comply with minimum social safeguards.

The environmental objectives of the framework include climate change mitigation and adaptation, sustainable use of water, transition to a circular economy, pollution prevention, and biodiversity.

Read the full article about the EU Sustainable Finance Taxonomy by Nikki Wong at Eco-Business.