Avoid greenwashing; apply the taxonomy as intended

Avoid greenwashing; apply the taxonomy as intended

The European Commission wants to create transparency with a ‘taxonomy’ about what a green investment is and what is not. Eu taxonomy is currently the buzzword in the financial sector when it comes to sustainable financing and investing. But the original good idea does not threaten to prevent greenwashing, but rather to promote it, warns Piet Sprengers, Sustainability Strategy and Policy Manager at ASN Bank.

I start this blog with a pub quiz. A quiz with one question, namely which bank is the most sustainable bank: A or B? We see the financing of two banks that finance a total of 60 million each for convenience. Bank A invests 5 million in solar and wind, 15 million in natural gas, 15 million in coal, and 15 million in other companies. Bank B, on the other hand, invests 10 million in solar and wind, 50 million in other companies, and nothing in natural gas and coal. Who is the most sustainable bank?

The answer later.

The European Commission finally wants to create a clear answer to this question. Indeed, there is a proliferation of green claims in the financial sector that are not all equally green, let alone comparable. The committee’s solution is the so-called ‘taxonomy’.

The ‘taxonomy’ is currently the buzzword in the financial sector when it comes to sustainable financing and investing. From 1 January 2022, financial institutions will be required to report on their share of financing or investments in the green activities described by the taxonomy. The aim is twofold: on the one hand, to stop greenwashing financial products and, on the other hand, to encourage more money flows into the European transition towards a climate-neutral and less environmentally harmful economy. The original proposals for taxonomy had a fair amount of enthusiasm. Of course there were discussion points in it (biomass green, nuclear energy not), but forward.

Can natural gas go on the books like green?

Until recently, according to insiders by the natural gas lobby, the replacement of coal with natural gas as green may also be included in the books. That was the final straw for environmental organisations such as the World Wildlife Fund and Nature and environment. This prompted them to ring the bell at the European Commission, together with many other signatories including ASN Bank, the ASN Investment Funds and Triodos Bank.

Because the correct answer according to the revised taxonomy is remarkably Bank A. A is even a lot more sustainable than Bank B. I admit, it is a theoretical and simplified example, but this is what the European Commission’s new proposal entails.

Taxonomy becomes instrument for greenwashing

The original idea of the taxonomy to combat greenwashing in the financial sector now threatens to achieve the complete opposite. The example shows that taxonomy itself is in danger of becoming a greenwashing tool. Because according to that definition, Bank B is no longer the most sustainable, but Bank A.

The last word has not yet been said. The gas lobby does not seem interested in what the taxonomy is for, she mainly wants to get into a green leaf herself.

Piet Sprengers, Sustainability Strategy & Policy Manager at ASN Bank

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