The European Parliament approved, in accordance with the ordinary legislative procedure, the Council's position at first reading with a view to the adoption of a regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088.

The Council's position at first reading reflects the agreement reached between Parliament and the Council in the context of inter-institutional negotiations at early second reading stage.

The proposed Regulation is part of the action plan ‘Financing sustainable growth’, which is aimed at redirecting capital flows towards sustainable investment with a view to achieving sustainable and inclusive growth. It establishes criteria for determining at EU level which activities should be considered ‘green’.

The Regulation aims to:

- provide companies and investors with appropriate definitions to help them determine which economic activities can be considered environmentally sustainable;

- empower final investors, in particular retail investors, to direct their capital towards environmentally sustainable activities by limiting, through these definitions, the risks of ‘greenwashing’;

- avoid market fragmentation by providing investors, companies and Member States with a single reference point for defining environmental sustainability for investment purposes.

The European Parliament adopted by 316 votes to 93, with 192 abstentions, a legislative resolution on the proposal for a regulation of the European Parliament and of the Council on establishing a framework to facilitate sustainable investment.

The European Parliament’s position adopted at first reading under the ordinary legislative procedure amended the Commission proposal as follows:

Criteria for determining the degree of sustainability of economic activities

This Regulation establishes the criteria for determining the degree of environmental impact and sustainability of an economic activity for the purposes of establishing the degree of environmental sustainability of an investment made within the EU.

According to these criteria, the economic activity in question shall contribute to the following environmental objectives:

- climate change mitigation;

- climate change adaptation;

- sustainable use and protection of water and marine resources;

- transition to a circular economy, including waste prevention and increasing the uptake of secondary raw materials;

- pollution prevention and control;

- protection of biodiversity and healthy ecosystems and restoration of degraded ecosystems.

These objectives shall be measured by harmonised indicators, life cycle analysis and scientific criteria, and be fulfilled ensuring they are up to scale to the upcoming environmental challenges.

Scope

The proposed Regulation shall apply to the following:

- measures adopted by Member States or by the Union setting out any requirements on financial market participants in respect of financial products or corporate bonds that are marketed within the Union as environmentally sustainable;

- financial market participants offering within the Union financial products as environmentally sustainable investments or as investments having similar characteristics, and

- financial market participants offering other financial products except where: (i) the financial market participant provides explanations that the economic activities funded by its financial products do not have any significant sustainability impact; (ii) the financial market participant declares in its prospectus that the financial product in question does not pursue sustainability objectives and that the product is at an increased risk of supporting economic activities that are not considered sustainable under this regulation.

Criteria for economic activities with a significant negative environmental impact

By 31 December 2021, the Commission shall conduct an impact assessment on the consequences of revising this Regulation to expand the framework for sustainable investments with a framework that is used to define criteria for when and how an economic activity has a significant negative impact on sustainability. This expansion shall be conditional to an outcome of the impact assessment that states that such an expansion is proportionate, feasible and desirable.

Application of and compliance with the criteria for determining the degree of environmental sustainability of economic activities

Member States and the Union shall apply the criteria for determining the degree of environmental sustainability of economic activities for the purposes of any measures setting out sustainability requirements on market actors in respect of financial products or corporate bonds.

Financial market participants offering financial products or corporate bonds shall disclose the relevant information allowing them to establish whether the products they offer qualify as environmentally sustainable investments. Where financial market participants consider that an economic activity for which technical screening criteria have not been established yet, should be considered environmentally sustainable, they shall inform the Commission.

Financial market participants shall not offer financial products as environmentally sustainable investments, or as investments having similar characteristics, if those products do not qualify as environmentally sustainable.

Member States, in close cooperation with the relevant European Supervisory Authority (ESA), shall monitor the information. Financial market participants shall report it to the relevant national competent authority which shall communicate it to the relevant ESA without delay.

Market monitoring

The relevant ESA shall monitor the market for financial products, which are marketed, distributed or sold in the Union. Competent authorities shall monitor the market for financial products which are marketed, distributed or sold in or from their Member State.

The relevant ESA may, where there is a breach of this Regulation, temporarily prohibit or restrict in the Union the marketing, distribution or sale of the financial products.

Platform on sustainable finance

The Commission shall establish a Platform on sustainable finance whose composition shall ensure balance, a wide range of views, and gender equality. It shall be composed, in balanced manner, of representatives from the following groups:

- the European Union Agency for Fundamental Rights;

- the European Financial Reporting Advisory Group (EFRAG);

- experts representing relevant private stakeholders, including the financial and non-financial market actors and business sectors, representing relevant industries;

- experts representing civil society, including with expertise in the field of environmental, social, labour and governance issues.

The European Parliament and the Council shall be duly informed in a timely manner of the selection procedure of experts for the Platform.

Minimum safeguards

By 31 December 2021, the Commission shall conduct an impact assessment on the consequences and appropriateness of revising this Regulation to include compliance with other minimum safeguards that the undertaking that is carrying out an economic activity has to observe in order to establish that economic activity as environmentally sustainable.

Review

By 31 December 2021, and subsequently every three years thereafter, the Commission shall:

- publish a report on the application and impact of this Regulation;

- review the scope of this Regulation if it creates excessive administrative burden or if the necessary data for financial market participants is insufficiently available. The reports shall be sent to the European Parliament and to the Council. The Commission shall make accompanying legislative proposals where appropriate.

The Committee on Economic and Monetary Affairs and the Committee on the Environment, Public Health and Food Safety adopted the joint report by Bas EICKHOUT (Greens/EFA, NL) and Sirpa PIETIKÄINEN (EPP, FI) on the proposal for a regulation of the European Parliament and of the Council on the establishment of a framework to facilitate sustainable investment.

The committee recommended that the European Parliament's position adopted at first reading under the ordinary legislative procedure should amend the Commission's proposal as follows:

Subject matter and scope

This Regulation establishes the criteria for determining the degree of environmental impact and sustainability of an economic activity for the purposes of establishing the degree of environmental sustainability of an investment made within the EU.

The proposed Regulation shall apply to the following:

- measures adopted by Member States or by the Union setting out any requirements on financial market participants in respect of financial products or corporate bonds that are marketed within the Union as environmentally sustainable;

- financial market participants offering within the Union financial products as environmentally sustainable investments or as investments having similar characteristics, and

- financial market participants offering other financial products except where: (i) the financial market participant provides explanations that the economic activities funded by its financial products do not have any significant sustainability impact; (ii) the financial market participant declares in its prospectus that the financial product in question does not pursue sustainability objectives and that the product is at an increased risk of supporting economic activities that are not considered sustainable under this regulation.

Criteria for economic activities with a significant negative environmental impact

By 31 December 2021, the Commission shall conduct an impact assessment on the consequences of revising this Regulation to expand the framework for sustainable investments with a framework that is used to define criteria for when and how an economic activity has a significant negative impact on sustainability. This expansion shall be conditional to an outcome of the impact assessment that states that such an expansion is proportionate, feasible and desirable.

Application of and compliance with the criteria for determining the degree of environmental sustainability of economic activities

Member States and the Union shall apply the criteria for determining the degree of environmental sustainability of economic activities for the purposes of any measures setting out sustainability requirements on market actors in respect of financial products or corporate bonds

Financial market participants offering financial products or corporate bonds shall disclose the relevant information allowing them to establish whether the products they offer qualify as environmentally sustainable investments. Where financial market participants consider that an economic activity for which technical screening criteria have not been established yet, should be considered environmentally sustainable, they shall inform the Commission.

Financial market participants shall not offer financial products as environmentally sustainable investments, or as investments having similar characteristics, if those products do not qualify as environmentally sustainable.

Member States, in close cooperation with the relevant European Supervisory Authority (ESA), shall monitor the information. Financial market participants shall report it to the relevant national competent authority which shall communicate it to the relevant ESA without delay.

Market monitoring

The relevant ESA shall monitor the market for financial products, which are marketed, distributed or sold in the Union. Competent authorities shall monitor the market for financial products which are marketed, distributed or sold in or from their Member State.

The relevant ESA may, where there is a breach of this Regulation, temporarily prohibit or restrict in the Union the marketing, distribution or sale of the financial products.

Platform on sustainable finance

The Commission shall establish a Platform on sustainable finance whose composition shall ensure balance, a wide range of views, and gender equality. It shall be composed, in balanced manner, of representatives from the following groups:

- the European Union Agency for Fundamental Rights;

- the European Financial Reporting Advisory Group (EFRAG);

- experts representing relevant private stakeholders, including the financial and non-financial market actors and business sectors, representing relevant industries;

- experts representing civil society, including with expertise in the field of environmental, social, labour and governance issues.

The European Parliament and the Council shall be duly informed in a timely manner of the selection procedure of experts for the Platform.

Minimum safeguards

By 31 December 2021, the Commission shall conduct an impact assessment on the consequences and appropriateness of revising this Regulation to include compliance with other minimum safeguards that the undertaking that is carrying out an economic activity has to observe in order to establish that economic activity as environmentally sustainable.

Review

By 31 December 2021, and subsequently every three years thereafter, the Commission shall:

- publish a report on the application and impact of this Regulation;

- review the scope of this Regulation if it creates excessive administrative burden or if the necessary data for financial market participants is insufficiently available. The reports shall be sent to the European Parliament and to the Council. The Commission shall make accompanying legislative proposals where appropriate.

PURPOSE: to establish a framework to facilitate sustainable investment.

PROPOSED ACT: Regulation of the European Parliament and of the Council.

ROLE OF THE EUROPEAN PARLIAMENT: the European Parliament decides in accordance with the ordinary legislative procedure and on an equal footing with the Council.

BACKGROUND: sustainability and the transition to a low-carbon and climate resilient, more resource-efficient and circular economy are key in ensuring long-term competitiveness of the Union’s economy.

In March 2018, the Commission published its action plan 'Financing Sustainable Growth' setting up an ambitious and comprehensive strategy on sustainable finance. One of the objectives set out in that action plan is to reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth.

In line with the Paris Climate Change Agreement and the 2030 UN Sustainable Development Agenda, this proposal is part of a broader Commission initiative to facilitate investment in sustainable projects and assets across the European Union. In particular, it defines uniform criteria for determining whether an economic activity is environmentally sustainable .

The proposal is presented in parallel with:

a proposal to bring institutional investors (management companies of undertakings for collective investment in transferable securities (UCITS), alternative investment fund managers (AIFs), insurance undertakings, institutions for occupational retirement provision (IORPs), European venture capital fund managers (EuVECA), European social entrepreneurship fund managers (EuSEF) and investment firms) to integrate environmental, social and governance (ESG ) considerations into their internal processes and inform their clients in this respect; a proposal to help investors compare the carbon footprint of investments.

IMPACT ASSESSMENT: the option chosen is that of a unified EU classification system (or taxonomy). An EU uniform classification would help determine which activities can be considered sustainable and send the right signals to economic actors, as it would translate EU policy objectives into concrete guidelines for identifying relevant projects or investments. It could therefore help to direct more capital towards sustainable investments.

CONTENT: the proposed Regulation seeks to standardise the criteria for determining whether an economic activity is environmentally sustainable for the purposes of establishing the degree of environmental sustainability of an investment.

Environmental sustainability criteria for economic activities : the proposal provides for criteria and a procedure for identifying environmentally sustainable investments, in order to avoid distortions of the single market due to differences in the interpretation of this concept between Member States.

According to these criteria, the economic activity should contribute substantially to one or more environmental objectives without causing significant harm to any other. These environmental objectives are: (1) climate change mitigation; (2) climate change adaptation; (3) sustainable use and protection of water and marine resources; (4) transition to a circular economy, waste prevention and recycling; (5) pollution prevention and control; (6) protection of healthy ecosystems.

In recognition of the principles enshrined in the European Pillar of Social Rights, economic activity should also be pursued in accordance with minimum international social and labour standards .

The Commission may adopt delegated acts specifying the technical screening criteria for determining what constitutes a substantial contribution to an environmental objective and what constitutes substantial harm to other objectives, those criteria also apply.

Disclosure obligations : the proposal requires those financial market participants that are subject to the disclosure obligations set out in the proposed Regulation on improving sustainability disclosure referenced above (e.g. fund managers) to disclose the degree of environmental sustainability of those financial products that they claim pursue environmental objectives.

If a fund manager offers a fund claiming it is a 'green fund', then for that particular fund the manager will have to indicate the way and the extent to which the criteria for environmentally sustainable economic activities were used to determine the environmental sustainability of the investment in the fund's pre-contractual disclosure document .

Sustainable Finance Platform : the proposal provides for a process involving a multi-stakeholder Platform to establish at EU level a uniform classification system based on a set of clear criteria to determine which economic activities may be considered sustainable. This Platform will assist the Commission in the progressive development and the update of the EU classification system .

The European Supervisory Authorities (ESAs) will play a key role in developing the European sustainability taxonomy to ensure that it is usable by financial institutions, applicable to financial products and compatible with EU financial legislation. The European Environmental Agency (EEA) will also be closely involved in the sustainable finance work.

BUDGETARY IMPLICATIONS: the European Commission will be responsible for managing the Platform (e.g. organising its meetings and meetings of any sub-groups, reporting on the outcome, preparing legislative proposals, liaising with the ESAs and the EEA, maintaining an IT collaborative tool, reimbursing experts, performing other secretarial tasks, etc). In order to accomplish these and other tasks, the European Commission would need 10 full-time employees as of 2020.

The total impact on expenditure is estimated at EUR 10.496 million for the period 2020-2023.