Sustainable finance: LIST contributes to the development of a unified EU classification system

The European Union is developing a common classification system to encourage private investment in sustainable growth and contribute to a climate-neutral economy. LIST researcher Enrico Benetto is part of the technical expert group set up to advise the European Commission on the implementation of the Action Plan on Financing Sustainable Growth.

A common language for businesses and investors

So-called sustainable finance differs from traditional finance in that it integrates ESG (i.e. Environmental, Social and Governance) criteria into its decision-making. The sector is booming, but the various players do not coordinate their methodological approaches, resulting in a proliferation of reference frameworks, methods or impact indicators. This makes understanding the offers much more complicated, for not only the sales staff involved in promoting these sustainable products, but also customers, who also find it difficult to compare the different proposals.

However, it is not only a question of understanding, but also of transparency. The abundance of indicators makes it difficult to verify them and can leave the door open to "green washing" or "social washing". This is why there is a twofold need to establish a clear and common framework for sustainable finance.

The EU-wide classification system, or "taxonomy", provides companies and investors with a common language to identify economic activities that are considered environmentally sustainable. The taxonomy will enable investors to refocus their investments on more sustainable technologies and businesses. It will be essential to enable the EU to become climate neutral by 2050 and achieve the objectives of the Paris Agreement for 2030, which include a 40% reduction in greenhouse gas emissions.

Look at the whole life cycle to assess the sustainability of an activity

The taxonomy was developed by a group of technical experts, with the assistance of a number of international experts, including Enrico Benetto of the LIST Environment Department. In developing the thresholds and technical criteria, the group of experts focused on life cycle considerations to avoid errors, such as considering an economic activity with significant negative impacts in its upstream or downstream stages as sustainable. Wherever knowledge and data were available, climate mitigation thresholds were based on a full life-cycle carbon footprint. LIST is proud to contribute to this common effort to achieve Europe's climate and environmental goals.

More information on LIST's research on sustainable finance: the REFUND project