The term 'green finance' is often used interchangeably with the 'sustainable finance' and




define neither of them - which causes some confusion (the said regulations provide, however, definitions of how a type of activity can be assessed to be sustainable).


Good example for this is Recital 5 of the Taxonomy Regulation.


Taxonomy Regulation, Recital 5 

In December 2016, the Commission mandated a High-Level Expert Group to develop an overarching and comprehensive Union strategy on sustainable finance. The report of the High-Level Expert Group published on 31 January 2018 calls for the creation of a technically robust classification system at Union level to establish clarity on which activities qualify as ‘green’ or ‘sustainable’, starting with climate change mitigation.


It is also true that the term ‘green finance’ is used in a variety of financial frameworks across the world (like green banks, green bonds, green loans, green mortgages etc.) - which led to ‘greenwashing’ concerns.

The proposal for an EU Green Bond Standard (GBS) was intended as the answer to this threat.


It is argued that terms “green” and “sustainable” have different meanings in different frameworks and may not always describe the same finance:

  • green finance is generally understood to be targeting the positive agenda towards climate and the environment and the term is used in the markets for products, instruments and finance purporting to be focussed on, and/or dedicated to, environmental objectives;
  • sustainable finance often has a wider meaning and inference than green, not only because it can cover social as well as economic and financial sustainability and governance, but because it can also mean identifying finance for both the positive agenda and that which is undermining environmental objectives (Transition finance report of March 2021, Platform on Sustainable Finance, p. 29). 

Investors also differentiate between so-called “light green” and “dark green” products.


The former are products that promote environmental characteristics (Article 6 of the Taxonomy Regulation and Article 8(4) SFDR) while the latter are the ones that invest in an "economic activity that contributes to an environmental objective" (Article 5 of the Taxonomy Regulation and Article 9(6) SFDR).


The said categories are subject to different sets of disclosure rules on the pre-contractual information.


FAQs, Commission Technical Expert Group on Sustainable Finance

The taxonomy is first and foremost a tool for investors.


Regulation introduces disclosure requirements, rather than telling investors in what to invest.

There is no obligation to invest only into taxonomy-compliant economic activities.

However, if a financial product is marketed and/or sold to investors as ‘environmentally sustainable’, then the extent to which it is green (the ‘greenness’) must be disclosed to investors by reference to the taxonomy.

This allows for many different investment strategies to co-exist, while avoiding a straightjacket approach.