New regulation of corporate sustainability in the European Union: what are the wider implications as an effort to regulate greenwashing

The European Union (EU) Green Deal has recently introduced a new financial tool, the EU Taxonomy. The taxonomy is a classification system that establishes a list of environmentally sustainable economic activities. The taxonomy will help investors to identify the economic activities that can be regarded as sustainable. Currently, only voluntary initiatives exist, such as the Global Reporting Initiative (GRI), as attempts to assess the environmental, social and governance (ESG) performance of corporations.The EU Taxonomy is being hailed as a major step in the transition to a sustainable, zero-emissions economy in the EU. The taxonomy also aims to create real transparency, exposing the many deliberately misleading claims that are routinely made as ‘corporate greenwashing’.This study argues that there is reason to expect that the EU Taxonomy and the consequent increase in transparency regarding corporate sustainability will have a significant effect on investment choices within the EU. In addition, a knock-on effect could be felt beyond the EU, as organisations align themselves with the standardised regulation of financial reporting on sustainable activity. Regulation will be based on the European Commission (EC) Technical Expert Group (TEG) reports definition of sustainable activities.While reporting on sustainability is mandatory within the EU investors are not compelled to choose sustainable activities when it comes to investing their money, certain signs indicate that sustainability is a developing economic imperative that is increasingly being recognised by the commercial world. However, such a transition is an ambitious attempt. The results of this first effort at a political level, based on strict regulation, to move towards a carbon-neutral economy, both within and beyond the EU, have yet to be seen due to the fact it is only now being implemented.Critics have argued that the ambition to simplify such a complex matter would render the taxonomy ineffective. However, the detailed and dynamic nature of the TEG report means that this taxonomy is an ongoing project that will evolve over time.