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Tools of Sustainable Finance

EU taxonomy for sustainable activities

The EU Taxonomy is a critical component of the EU’s sustainable finance framework, designed to support the European Green Deal and the EU’s climate targets for 2030 and 2050. It is a classification system that defines criteria for economic activities that are environmentally sustainable, helping to direct investments towards the sectors most crucial for achieving a net-zero trajectory by 2050 and broader environmental goals.

The need for a common language and clear definitions of what constitutes "sustainable" is essential to meeting the EU's climate and energy targets. The EU Taxonomy provides this by offering a standardized framework that financial and non-financial companies can use to classify economic activities as environmentally sustainable. This standardization helps prevent greenwashing, provides clarity for investors, and supports the scaling up of sustainable investments across the EU.

The Taxonomy Regulation which entered into force on 12 July 2020., lays the foundation for the EU Taxonomy. It sets out four overarching conditions that an economic activity must meet to be considered environmentally sustainable. The European Commission is responsible for defining the technical screening criteria for each environmental objective through delegated and implementing acts.

The Taxonomy's Role in Practice

To support the practical implementation of the EU Taxonomy, the European Commission has developed the EU Taxonomy Navigator, an educational and user-friendly tool that includes:

  • EU Taxonomy Compass: A visual guide to sectors, activities, and criteria included in the Taxonomy delegated acts.
  • EU Taxonomy Calculator: A step-by-step guide to help companies meet their reporting obligations.
  • FAQs Repository: A collection of common questions and answers about the Taxonomy.
  • EU Taxonomy User Guide: A non-expert guide to understanding the Taxonomy.

Find out more about the EU taxonomy navigator

Policy Making Timeline

Key milestones in the development and implementation of the EU Taxonomy include:

  • 21 November 2023: Publication of a Delegated Act in the Official Journal, outlining economic activities that contribute to objectives such as sustainable use and protection of water, transition to a circular economy, pollution prevention, and biodiversity protection. These amendments clarify reporting obligations and expand the list of activities contributing to climate change mitigation and adaptation. The new rules will apply from January 2024.
  • 17 October 2023: Launch of the EU Taxonomy stakeholder request mechanism.
  • October 2022 - October 2024: Second mandate of the Platform on Sustainable Finance, continuing the work of advising the Commission on sustainable finance matters.

Relevant Legislation

  •  Taxonomy Regulation (2020/852/EU): The foundational legislation establishing the criteria and framework for the EU Taxonomy.

This framework and its tools aim to guide and accelerate sustainable investments, ensuring they align with the EU’s long-term environmental goals.

The European green bond standard – Supporting the transition

Green bonds are crucial in financing the low-carbon transition, and the EU aims to establish a clear gold standard for these bonds through the European Green Bond Standard (EuGB). This voluntary standard leverages the detailed criteria of the EU Taxonomy to define green economic activities, ensuring high transparency and robust supervision. The European Securities and Markets Authority (ESMA) will oversee companies conducting pre- and post-issuance reviews, ensuring compliance and reliability, thus helping to combat greenwashing. This initiative was recommended by the Commission’s High-Level Expert Group on sustainable finance.

The EuGB Standard is designed to help scale up the green bond market while raising its environmental ambitions, providing issuers and investors with a trusted framework for green investments.

Policy Making Timeline


Related Resources


For more insights, check out the EU Finance Podcast Episode 9 on the European Green Bond Standard.
This new standard is a significant step towards fostering sustainable investments and ensuring that green bonds genuinely contribute to the EU's climate and environmental goals.

ESG rating activities

Environmental, Social, and Governance (ESG) ratings assess a company or financial instrument's sustainability performance, evaluating its exposure to sustainability risks and its impact on people and the environment. These ratings play a critical role for investors by providing essential information for sustainable investment strategies, helping them assess risks and impacts linked to ESG issues. Companies also use ESG ratings to identify operational risks, investment opportunities, and to benchmark their performance against peers.

Given the increasing importance of ESG ratings, the EU has introduced new regulations to ensure that investors and stakeholders have access to reliable, comparable, and transparent information about ESG ratings. This regulation aims to enhance transparency in ESG ratings, reduce greenwashing, and promote sustainable investments by making the methodologies and governance of ESG rating providers more transparent and robust.

The regulation also mandates that ESG rating providers offering services in the EU must be authorized and supervised by the European Securities and Markets Authority (ESMA). Additionally, it requires financial institutions that develop their own ESG ratings to disclose the same level of information as specialized ESG rating providers.

Policy Making Timeline


These regulations and measures are designed to improve the reliability of ESG ratings, thereby fostering greater confidence in sustainable investments and ensuring that they genuinely contribute to environmental and social goals.