Do Global Sustainable Finance Classifications All Draw Inspiration from the European Model?

Sustainable finance seeks to steer investments toward activities that respect the environment and climate. To achieve this, Europe has established a precise set of rules, known as the European classification, which defines which economic activities can be considered sustainable. This system is based on strict technical criteria. It notably requires that each activity makes a significant contribution to at least one environmental objective without harming others. This rigorous approach is now being adopted by several countries, albeit with local adaptations.

A recent analysis compares the European classification with those of other countries such as South Africa, Colombia, Thailand, and South Korea. It reveals that most classifications share similar goals, such as combating climate change or protecting biodiversity. However, not all apply the same requirements. For example, some omit verifying that activities do not cause significant harm to other environmental aspects, which can encourage greenwashing—the practice of presenting an activity as greener than it actually is.

The European classification stands out for its detailed and technology-neutral method. It does not favor any particular solution, allowing for the inclusion of innovations and avoiding the exclusion of promising technologies. Some countries, like South Africa, have even enhanced certain European criteria to make them even more ambitious. Conversely, other classifications, particularly outside Europe, sometimes lack precision. They may simply list activities considered green without analyzing their real impacts or side effects.

For these systems to be effective and comparable on an international scale, it would be useful to harmonize their structures and definitions. Better coordination would enable investors, businesses, and regulators to work with common references. This would also facilitate the transition to a lower-carbon economy that is more respectful of natural resources.

Energy is a key sector in this transition. Classifications examine, in particular, how to produce and distribute electricity sustainably. Here again, approaches vary. Some impose strict greenhouse gas emission thresholds, while others are less demanding. These differences complicate comparisons between countries and can hinder cross-border investments in truly sustainable projects.

The challenge is twofold: maintaining a certain flexibility to adapt to local realities while strengthening coherence between classifications. This would involve adopting robust technical criteria and more transparent governance. The goal is to ensure that financing genuinely supports activities beneficial to the planet, without leaving room for abuse or overly broad interpretations. The European classification, often cited as an example, could serve as a basis for building this harmonization, provided that each country agrees to align its rules with common standards.

Credits

Source Study

DOI: https://doi.org/10.1007/s10098-025-03384-6

Title: Classification of the EU taxonomy for sustainable activities among other sustainable finance taxonomies worldwide

Journal: Clean Technologies and Environmental Policy

Publisher: Springer Science and Business Media LLC

Authors: Sarina Achterfeldt; Marzia Traverso