European Union standards to define green investments are likely to face delays because many of the bloc’s governments want more time to assess them, EU officials said. That extra time may undercut climate targets and limit sales of green assets.
As part of global plans to reduce carbon emissions, the European Commission (the executive branch of the EU) proposed last year that the bloc establish an EU-wide classification scheme for sustainable investments. That scheme is being called a taxonomy.
By setting clear standards on what is green and what is not, Brussels intends to expand the market in green bonds and securities, and tackle so-called “greenwashing” – a term used to describe companies or investment products that claim undeserved environmental credentials.
Incoming European Central Bank (ECB) president Christine Lagarde said this month that after a taxonomy is introduced, the bank could buy more green bonds as part of its monetary stimulus.
At the end of 2018, the ECB held around 18 billion euros ($19.88bn) in corporate and public green bonds. Continuing its gradual rise since its creation in 2012, the market is expected to expand to $250bn this year.
However, the bloc’s plans for a definitive classification may take longer than initially expected.
A delay in introducing eco-labels could dissuade investors from buying green bonds and assets.
That would also go against the EU’s plans to strengthen the international use of the euro in financial markets and challenge the dominance of the United States dollar.
“Sustainable finance is a great opportunity for the euro,” Thierry Roland, head of global banking at HSBC Europe, told a conference in Brussels on Thursday.
The market for green bonds is mostly denominated in euros, unlike most other assets, which are priced in dollars. An expansion of the green bond market would, therefore, contribute to making the euro stronger as a global currency, Roland said.
Under the commission’s plan, initial lists of financial products that can be labeled as green should be published in mid-2020. Brussels is likely to heed a nonbinding opinion from an expert group that in June advised the commission to exclude all assets related to coal and nuclear power.
But many states hold a different view. According to officials familiar with the talks, they are discussing delaying any adoption of the taxonomy by two or three years.
They also want more say over how decisions are made, which give more weight to political considerations. This could strengthen the hands of states that rely on coal, like Poland, or those that have powerful nuclear industries, like France.
Talks are continuing in view of a possible compromise this month.
Pressure from states keen on bolder climate targets could make EU governments settle on a plan closer to the commissions. The European Parliament will then need to back the compromise before it becomes law.