Why is green taxonomy important for investors?

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One of the keys to achieving sustainability of the planet and the economy is sustainable finance. In this way, it seeks to change the main parameters that drive investment towards social and environmental responsibility and sustainable development.

It is essential that the objectives of the planet are aligned with our economic activities, and it is increasingly important to seek coherence between the market and environmental sustainability.

For this, it is necessary to establish a regulatory framework that helps companies and investors to easily contribute to sustainability through clear definitions of it. The green taxonomy is presented as the future of sustainable finance, where betting on social responsibility can be profitable.

What is green taxonomy?

The green taxonomy is a classification system based on various criteria and indicators that determine whether or not a particular economic activity can be considered environmentally sustainable or green.

With the aim of facilitating the transition to a sustainable economy, the European Union tries to establish a common language that facilitates a more concrete definition of what sustainability implies. With this, the EUT was born as a kind of instruction manual that provides clear descriptions of what constitutes a sustainable economic activity or investment.

This new European taxonomy could become a global leader in approaching a more transparent and less fragmented market. In addition, it protects investors from greenwashing and provides a legal and concrete structure to move investment towards the sustainability of the planet and people.

The European taxonomy regulation for sustainable activities is mainly governed by six environmental objectives:

  1. Climate change mitigation
  2. Adaptation to climate change
  3. The sustainable use and protection of water and marine resources
  4. The transition to a circular economy
  5. Pollution prevention and control
  6. The protection and restoration of biodiversity and ecosystems

In addition, three basic criteria are established to be able to denominate a certain activity as sustainable:

  • Contribute substantially to at least one of the environmental objectives defined in the Regulation
  • Not significantly harm any of the objectives defined in the Regulation.
  • Comply with minimum social guarantees, such as compliance with the UN Guiding Principles on Business and Human Rights.

Why is the EUT relevant to investors?

Market transparency is crucial for its proper functioning. The European taxonomy provides a transparent space where it is easy to distinguish those activities that really contribute to the sustainable transformation of the economy.

With a clearly defined market in terms of sustainability, investors are expected to opt for those economic activities that comply with the objectives set by the EUT.

In addition to contributing to the sustainable change of our economy and society, investors who pursue activities that mitigate the effects of climate change can benefit in different ways:

  • Alignment with the SDGs: The framework of objectives provided by the SDGs at the global level are very ambitious. The objectives of the EUT, however, are aligned with the latter in a more concrete way, facilitating and bringing the implementation of the UN structural framework closer to investors.
  • Economic advantages: Since the EUT is still in its initial phase, there is scope for companies to position themselves as leaders in sustainable investment. And since the EU intends to direct its investments in this direction, it could generate a significant economic advantage for early stage investors.
  • Transparency in the face of greenwashing: The regulation contributes to greater transparency that helps investors to distinguish what truly constitutes a sustainable and responsible investment. At the same time, it will serve to understand in a more tangible way to what extent it is contributing to meeting the objectives of the Paris Pact or the 2030 Agenda.

Transparency, trust and responsibility

Thanks to the regulatory framework that the EUT proposes, not only are the criteria to be taken into account established when we talk about sustainability, but it also promotes transparency and trust in a market that increasingly advocates corporate social responsibility.

The financial market is gradually heading towards an economic system marked by the profitability of taking care of the planet and people.

At DoGood, we are committed to improving the world with small actions in an innovative, measurable and fun way that promote a society where sustainability is the norm.

In addition, we help you activate the SDGs, improve your ESG metrics and improve the Non-Financial Information Statements through your teams.

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