EU Taxonomy: The Driver of Sustainable Finance

Accepting the errors of traditional economic development and transitioning towards a sustainable framework for financial activities has been a core issue on every global leader’s agenda in the last few years. In 2019, the European Union declared its ambition to become the first leading climate-neutral continent in the world by the year 2050 (EU, 2020). In this quest, several initiatives have been enacted. One of them has been the EU Taxonomy System.

Climate Neutrality is defined as reaching net-zero greenhouse gas emissions, by reducing a large amount of them and compensating for the remaining amount (UN Climate Change, 2021). To achieve this objective, and after committing to the 2015 Paris Agreement on climate action, the European Union set forth the European Green Deal. This instrument acts as a policy compass for environmentally friendly investment in innovative technologies, decarbonization of the energy sector, energy-efficient buildings and clean transport. The aim is to redirect financial flows to green investments (EU, 2019). The EU Taxonomy specifically classifies those investments.

Cattermole, C., 2020. EU Taxonomy Reporting for Sustainable Finance: 4 Key Challenges. [Photo]. UL.

The Taxonomy Regulation, published in 2020, consists of a list of criteria for what the EU considers to be a sustainable economic activity, and it was designed with the private sector and large investors in mind (Poolen, 2020). Any new project should be in line with climate change mitigation, sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and reduction as well as the protection and restoration of biodiversity and ecosystems (EU, 2020). These are the six basic environmental objectives of the regulation, but any investment can be classified as green by substantially contributing to at least one and not significantly straining any of the rest. Companies should also be complying with basic social precautionary parameters and technical screening criteria (Ibid.).

With article 20 of the Regulation (EU) 2020/852, the Commission established the Platform on Sustainable Finance, an advisory body consisting of sustainability experts, market and financial advisors as well as academic researchers, which is in charge of developing and updating such technical screening criteria (European Commission, 2020). The criteria are based on qualitative and quantitative methodologies that aim to investigate any enterprise's level of contribution to any given environmental objective, assess the market impact and set the basic requirements that specify which economic activity could be potentially harmful to the environment and therefore does not qualify for the Regulation and the European Union's overall goals. (Regulation (EU) 2020/852, Art. 19). The Platform also monitors the financial flows toward sustainable investment and advises the Commission on future sustainable finance policymaking.

With this tool, big corporations can have a compass on how to characterize and construct their financial activities to ensure better conditions, public support and access to European funding. To participate, they are expected to disclose sensitive data to the EU that would satisfyingly exhibit the degree to which their activities fulfil the EU's environmental standards. They shall grant access to capital expenditures that are relevant to the Taxonomy Regulation and to their additional efforts to sustainably optimize other aspects of their operation. Companies can use the Taxonomy's rulebook as a guide to upgrade their environmental strategies, profit from green revenues and attract investors that are interested in green lucrative ventures. For instance, a large European bank would be able to grant a company that engages in Taxonomy-aligned activities a loan with a better interest rate (European Commission, nd).

Plumer, B. (2018). A Year After Trump’s Paris Pullout, U.S. Companies Are Driving a Renewables Boom [Illustration]. New York Times

The Union’s goal is to channel private investment funds towards environmentally friendly endeavours and projects (EU, 2017), and thus help streamline its financial policy and behaviour with sustainability considerations and climate safety valves. It is a strategy that works both ways and it will move the EU closer to fulfilling its climate neutrality promises.

"New EU taxonomy criteria will define activities that best contribute to fighting climate change and to guiding the massive investments needed. Other measures will ensure companies provide reliable information on sustainability. The EU leads the way on sustainable finance." Ursula von der Leyen, 2021

What has been considered a rather controversial decision was that at the beginning of the year, the European Commission notified member states that natural gas and nuclear power would also be classified as green investments, though they were not part of the starting text (Brooks, 2022). In article 19, paragraph 3 of the Regulation it is in fact clearly stated that "power generation activities that use solid fossil fuels do not qualify as environmentally sustainable economic activities". However, placing sustainability and climate aside, one of the EU’s most substantial objectives, for which it has made great efforts and errors in the past, is its energy security and supply (Elbassoussy, 2019).

Nuclear power and gas are the main energy sources for generating electricity (World Nuclear Association, n.d.), and halting investment in those fuels would create great grief to the electricity supply. It is further relevant to note that the Taxonomy never made investments in non-sustainable economic activities illegal: investors were still able to route their capital flows however and wherever they pleased before this amendment of the Regulation. The EU thus decided to add natural gas and nuclear power to a regulation that was supposed to generate interest and money for sustainability-based projects. Their inclusion was accompanied by certain criteria and limitations, which however do not enshroud the expediency of the modification. (Brooks, 2022)

KGW, (2020). Greenwashing - What it is and why we need to call it out when it happens. [Illustration]

Naming such sources as green is misleading and inaccurate, even if natural gas is considered to be the cleanest energy source among fossil fuels. (Fu et all, 2021). Various NGOs that work in the environmental sector have expressed their concern over the EU's decision to continue leading funding towards anti-climate activities, and labelled it as constitutional greenwashing (Crêpy, 2022). What the EU promised was to stop investing in fossil fuels to be able to achieve its environmental and climate goals. Continuing to support natural gas and nuclear power sets the EU off track, while opportunities for the use and advancement of renewable energy sources are underscored. Renewables might not be without their own drawbacks, but they are part of the solution to the stability of the energy supply (Johansson, 2013). The EU can use them to diversify its energy resource mix, fulfil its environmental goals, generate such energy of its own volition and reduce import dependency. Further considering the economic and geopolitical implications of energy dependence (Rodríguez-Fernández et all, 2020), it is all the more important to solely dedicate to renewable sources of energy, excluding fossil fuels.

Christine Langard, the Managing Director of the International Monetary Fund, in her remarks about climate mitigation has stated that “It is a collective endeavour. It is collective accountability and it may not be too late”(Santiago, 2015). Accountability is a term used to describe taking responsibility for one's actions and holding themselves accountable for their commitments: the European Union assumes it as long as it continues insisting that it wishes to leave no one behind and accomplish its objective of providing a safe, energy- efficient and socially just Europe for all. One can only wish that the long-reigning greenhouse gas and carbon devotees will actually be left behind.


Brooks, C. (2022, February 4). EU Taxonomy adds gas, nuclear despite veto from EC's own experts. IHS Markit.

Crêpy, M. (2022, January 27). Is it legal for the EU to label gas and nuclear as “environmentally sustainable”? Experts doubt it. ECOS.

Elbassoussy, A. (2019), "European energy security dilemma: major challenges and confrontation strategies", Review of Economics and Political Science, Vol. 4 No. 4, pp. 321-343.

European Commission. (n.d.)Current Version. FAQ: What is the EU Taxonomy and how will it work in practice?

European Commission. (2020). Platform on Sustainable Finance. European Commission - European Commission.

European Union. (2017, July 4). Sustainable finance. European Commission - European Commission.

European Union. (2019, October 12). A European Green Deal. European Commission - European Commission.

European Union. (2020) Regulation (EU) 2020/852 on establishing a framework to facilitate sustainable investment.OJ L 198, 22.6.2020, p. 13–43.

European Union. (2020, October 14). 5 facts about the EU’s goal of climate neutrality. Council of the European Union.

Fu J., Liu Y., Sun F. (2021). Identifying and Regulating the Environmental Risks in the Development and Utilization of Natural Gas as a Low-Carbon Energy Source. Frontiers in Energy Research. Volume 9 Retrieved from DOI=10.3389/fenrg.2021.638105

Johansson B. (2013). Security aspects of future renewable energy systems–A short overview, Energy, Volume 61, Pages 598-605, ISSN 0360-5442, Retrieved from


Poolen, D. (2020, November 5). The EU Taxonomy – A New ‘Green Language’ for Companies. RaboResearch - Economic Research.

Rodríguez-Fernández L., Fernández Carvajal A., Ruiz-Gómez L. (2020). Evolution of European Union's energy security in gas supply during Russia–Ukraine gas crises (2006–2009), Energy Strategy Reviews, Volume 30, 100518, ISSN 2211-467X, Retrieved from(

Santiago, J. (2015, November 27). 15 quotes on climate change by world leaders. World Economic Forum.

United Nations Climate Change. (2021, February 26). A Beginner’s Guide to Climate Neutrality | UNFCCC. UNFCCC.

von der Leyen, U. @vonderleyen. (2021, April 21). New EU taxonomy criteria will define activities that best contribute to fighting climate change and to guiding the massive investments needed. Other measures will ensure companies provide reliable information on sustainability. The EU leads the way on sustainable finance. (Tweet). Twitter.

World Nuclear Association. (n.d.). Where does our electricity come from? - World Nuclear Association.

Image Sources

Image 1. Cattermole, C. (2020, December 24). EU Taxonomy Reporting for Sustainable Finance: 4 Key Challenges. UL.

Image 2. Plumer, B. (2018, June 2). A Year After Trump’s Paris Pullout, U.S. Companies Are Driving a Renewables Boom. The New York Times.

Image 3. Greenwashing - What it is and why we need to call it out when it happens. (2019, September 6). Keep Gaia Wild.

For Green Readers

Koundouri, P. (2022, February 11). Ευρωπαϊκή Ταξινομία και Αγορά Ενέργειας – Φυσικό Αέριο και Πυρηνική Ενέργεια – Kreport. K-Report.

Author Photo

Konstantina Manta

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