In its third technical report for the Development of EU Ecolabel criteria for Retail Financial Products, the Joint Research Committee (JRC) of the European Commission made several changes that could severely impair the future label’s credibility. The third report notably introduces new categories of companies that conduct polluting activities but could still be included in the “Ecolabelled” financial products. Reclaim Finance proposes key changes to ensure that the Ecolabel does not turn into greenwashing.
EU Ecolabels have been used since 1992 to certify the environmental quality of consumer goods commercialized in the European Union. In September 2020, 75,796 products benefited from these labels. The EU has recently started exploring the possibility of an Ecolabel for financial products (investment funds, savings products, fixed-term deposit, and savings deposit accounts) and tasked its research committee – the Joint Research Committee or JRC – to work on it.
The EU Ecolabel for financial products mainly relies on two ideas:
1. Certified financial products should significantly contribute to the ecological transition by supporting activities included in the EU sustainable finance taxonomy.
2. Certified financial products should not be used to finance the most polluting activities clearly incompatible with European ecological objectives.
The JRC has published three successive reports that set out the possible criteria for this new Ecolabel. While the content of these reports is quite technical, the first two reports required all certified products to exclude financial support to the most polluting activities – listed and defined in “Criteria 3” – including fossil fuels.
However, in the third report, which is open to consultation until December 11th, the Joint Research Committee (JRC) of the European Commission created two categories of companies – called “companies investing in transition ” or “in green growth ” – that could still benefit from Ecolabelled financial products while carrying out polluting activities listed in Criteria 3. The JRC’s stated goal is to broaden the Ecolabel eligible investment universe and account for transition plans made by “non-green” companies. The conditions set out by the JRC for companies to be included in one of these two categories seem based on the assumption that companies are well-intended and actively aiming to achieve a swift transition. Therefore, they are problematic as they miss two important points:
- The companies “in transition” or “in green growth” could continue to invest in polluting activities, including fossil fuels, even though they are allegedly actively transitioning.
- The companies “in transition” or “in green growth” do not have to set a Paris-Aligned phase-out plan for their fossil fuel assets. Beyond fossil fuels, their commitment to phase-out all other polluting activities excluded under the Ecolabel remains dangerously vague.
Additionally, several other modifications made by the JRC in its third report lower the Ecolabel’s ambition. Two modifications are especially worrying:
- The requirements for “green” investments were weakened to certify equity products that devote less than 50% to “green” activities.
- The draft Ecolabel now allows banks handling labeled savings accounts to use up to 30% of the accounts to grant loans for companies making new investments in polluting activities. This change is not just incoherent, it is also a critical breach of savers’ trust and could mislead Europeans in their search for a more responsible savings product.