The term 'green finance' is often used interchangeably with the 'sustainable finance' and
- the Taxonomy Regulation and
- the SFDR
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.
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.