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Sustainable Finance: What is the Green Taxonomy ?

Introduced at the beginning of 2022, the green taxonomy is a European regulation that establishes a classification of activities contributing to the achievement of environmental objectives.

While sustainable funds have been flourishing in the markets for several years, the lack of regulatory uniformity has often caused confusion among investors. In response to this legal ambiguity that promotes greenwashing, the European Union has implemented a green taxonomy. But what exactly are we talking about?

What is the Green Taxonomy?

The green taxonomy is a European regulation that establishes a classification of economic activities with a positive impact on the environment. Partially in effect since early 2022, and fully effective since the beginning of 2023, it enables "economic actors to identify activities compatible with the objective of achieving a carbon-neutral economy by 2050."

To be considered "green," an activity must "substantially contribute" to one or more of the following six objectives: climate change mitigation, climate change adaptation, sustainable use and protection of aquatic and marine resources, transition to a circular economy, pollution control, and protection and restoration of biodiversity and ecosystems.

Who is affected?

Several actors are impacted by the green taxonomy, including companies that are required to disclose the proportion of their revenue, investments, and expenditures allocated to activities considered "sustainable." Member states are also involved, as they must implement regulations and control mechanisms at the national level. Additionally, financial actors, insurance companies, and financial supervisory institutions (such as central banks) are affected.

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