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New EU law should reveal how sustainable companies really are

April 8, 2019

The EU is about to finalise a key law for a more sustainable economy. If ambitious enough, the law will help shift trillions of euros towards more environmentally beneficial activities. It will help bring Europe’s economy in line with the Paris Agreement’s climate goals and the UN Sustainable Development Goals.

 

When you buy a fridge or an oven, the EU energy efficiency label shows you its environmental credentials instantly.

 

A similar idea is in the works for the entire EU economy. Imagine: every economic activity, from fuels to fishing, would be rated on its environmental impact, in a publicly visible way.

 

This matters because every economic activity has some sort of effect on the environment. Maybe it emits greenhouse gases, maybe it uses up natural resources, pollutes water, or drives deforestation. And if we cannot clearly see how positive or damaging that impact is, it is much harder to move to more sustainable practises.

 

Providing an environmental impact rating would show companies how sustainable their business model is. It would enable investors to take environmental impact into account.

 

For the EU as a whole, it would help make our economy more sustainable and less harmful. This would be a major step towards implementing the Paris Agreement on climate change - under which the EU committed to try and keep temperature rise to 1.5°C - and the UN’s Sustainable Development Goals, which aim to transform every area of the economy and society.

 

Unfortunately, the road to agreeing on a meaningful sustainability rating for the whole economy - known as a ‘taxonomy’ in EU speak - is an uphill one.

 

Both the European Parliament and the EU Council - that is, ministers from EU member states - need to agree on what they want before it can become law. The European Parliament voted on the proposal in March, but disappointingly, it supported a taxonomy which would have just two categories, ‘sustainable’ and ‘other’.

 

This means that the few truly ‘green’ activities would be categorised as ‘sustainable’, and everything else lumped together, from really polluting activities like coal power, to those which are much more neutral or less damaging.

 

If you consider that the EU’s Energy Efficiency label has seven categories, and credit ratings have 21, it is clear that just two categories are not enough.

 

So the European Parliament’s position is too weak. What about the EU Council? The member states are expected to reach their joint position in April or May.

 

WWF is calling on the EU Council to agree on an ambitious taxonomy that would classify all economic activities on their degree of environmental impact - while ensuring such activities do not have negative social impacts. This would be the most effective way of shifting money towards more sustainable activities, because it would give companies and investors maximum visibility over the different steps required.

 

 

 

The exciting thing is, once we have an ambitious taxonomy agreed, it can swiftly start being put into place. This is because the European Commission’s technical experts are already working hard on the tool needed to set up the taxonomy, and will set up a dedicated group to complete the task.

 

It’s a critical moment. If it fails to improve the taxonomy’s ambition, the Council will have missed a crucial opportunity to accelerate the EU economy’s transition towards sustainability. It will make European leaders’ commitments on climate and sustainability leadership, and their claims to lead on sustainable finance, look hollow.

 

It is time to back those commitments and claims with ambitious action: getting the taxonomy right is the next opportunity. This will bring us transparency on the environmental impact of economic activities, and help improve our economies’ environmental footprint, in order to curb emissions and drive a truly sustainable future for Europe.

 

 

 

 

 

Keep track of our work on www.wwf.eu and Twitter (@WWFEU)