The Council of the EU and the European Parliament have reached a provisional compromise agreement on the Commission proposal for a regulation on the establishment of a framework to facilitate sustainable investments (the Sustainable Finance Taxonomy Regulation). After a fifth round of political trilogue negotiations on 3 December 2019, a sixth round was required on 5 December to reach a provisional compromise. The initial positions of both the European Parliament and the Council were far apart, making it difficult to come to a swift agreement. The key contentious issues on which disagreement existed were the scope of the taxonomy, the disclosure requirements for financial firms and the governance of adopting technical screening criteria laying down what constitutes an environmentally sustainable economic activity. The trilogue agreement is only provisional as it still requires the approval of the Member States and the European Parliament. After receiving feedback, the negotiators plan to convene on 17 and 18 December 2019 for a last round of negotiations before concluding a final compromise.

It is understood that the Council and the Parliament have, inter alia, agreed on the following:

  • the scope of the taxonomy would apply to all financial products that are marketed as environmentally sustainable and financial products that contribute to environmentally sustainable economic activities. The European Parliament previously argued for extending the scope to all financial products in order to create a level playing field;
  • the level 2 measures which would implement the technical screening criteria laying down what constitutes an economic activity will be adopted by the European Commission via delegated acts. Previously, the EU Member States wanted to have more powers in the adoption of these measures. Yet, the Parliament was cautious that Member State involvement in the adoption of these measures would politicise the development and adoption of these criteria; and
  • the Sustainable Finance Taxonomy Regulation would apply from December 2021.

The Sustainable Finance Taxonomy is considered a cornerstone of the future EU policies on sustainable finance, which was laid down in the May 2018 EU Sustainable Finance Action Plan. The European Parliament adopted its report on the proposal in April 2019, and the Council reached its general approach on 25 September 2019. Trilogue negotiations commenced on 23 October 2019. The new European Commission has indicated that it will use the Sustainable Finance Taxonomy to develop an EU standard for green bonds and an eco-label for retail investment products.