The EU taxonomy is a “tool to help investors, companies, and issuers and project promoters navigate the transition to a low-carbon, resilient, and resource-efficient economy” (TEG, 2020, p. 2). The taxonomy sets reporting standards and performance thresholds. Starting in January 2022, all fund providers, insurance product providers, and pension plans who market their strategies in the EU as being sustainable must report using the taxonomy framework. Financial market participants will be required to disclose how the taxonomy was used “in determining the sustainability of underlying investments, to what environmental objective(s) the investments contribute, and the proportion of underlying investments that are taxonomy aligned, expressed as a percentage of the investment, fund, or portfolio” (TEG, 2020, p. 37).
The EU Green Bond Standard (GBS) is intended to increase the “transparency and comparability of the green bond market, as well as to provide clarity to issuers on the steps to follow for an issuance, in order to scale up sustainable finance.”9 The purpose of the GBS framework and reporting requirements for proceeds of green bond issues is to increase the availability of financing, and to lower the cost of that financing, for projects aimed at reducing climate change.
The EU Regulation for Low Carbon Benchmarks provides the “definition of minimum standards for the methodology of the ‘EU Climate Transition’ and ‘EU Paris-aligned’ benchmarks, that are aligned with the objectives of the Paris Agreement and addressing the risk of greenwashing.” The TEG “has also worked on disclosure requirements in relation to Environmental, Social, and Governance (ESG) factors in the benchmark statement and the benchmark methodology for all types of benchmarks (except interest rate and foreign exchange benchmarks) including the standard format to be used to report such elements.”10
A summary of the minimum standards of the EU benchmarks is provided in the following table: