What Qualifies as a Green Investment?

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Brussels—The European Union outlined the world’s first comprehensive green-financing rules, seeking to regulate claims made by the finance industry in the burgeoning area of environmentally sustainable investment products.

Currently a global patchwork of rules and guidelines regulates some aspects of green financing, such as bonds. But the lack of a unified classification system has allowed investors and companies to come to their own, sometimes contradictory conclusions about what makes an investment sustainable. That has created uncertainties, even prompting regulatory scrutiny.

Negotiators in Brussels late Monday clinched a compromise on defining a framework to regulate sustainability standards across the economy.
EU governments are expected to approve the framework Wednesday, with European Parliament adoption to follow soon. The rules will apply only in the EU but could have an outsize effect due to Europe’s large financial markets and leadership in the sector.
European officials have been racing to set the global benchmark for green finance amid surging demand for sustainable investment. Their deal comes on the heels of the EU’s commitment last week to boost its fight against global warming by cutting greenhouse gas emissions to net-zero by 2050. The bloc needs trillions of euros in investments to meet its climate goals, and has so far offered limited public funding.