Ecologically sustainable or not?: The introduction of the EU Taxonomy for Sustainable Activities

This study sheds light on the implications of the EU taxonomy for financial market participants and its potential to strengthen transparency and comparability of information for companies and investors. By setting qualitative and quantitative technical screening criteria, the EU taxonomy identifies the extent to which economic activities, businesses and assets are compatible with six overarching environmental targets. The alignment with the EU taxonomy should help companies to access new sources of sustainable finance on capital markets and to close the investment gap to achieve international climate targets. By integrating the environmental costs and long-term risks of climate change associated with certain economic activities into financial instruments, the EU taxonomy provides the potential to better link creditors and debtors, to improve the functioning and allocative efficiency of capital markets, and to leverage finance for sustainable investments. To strengthen its credibility and effectiveness over the long-term, the EU taxonomy should cover relevant sectors and actors of the entire economy, it should clarify remaining uncertainties on the interpretation of the binary classification system, and it should emphasize forward-looking investment plans and indicators in order to enable the green transformation.