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Why EU Climate Weapon Is in the Financial Fine Print

Aerial Views Of Hamburg And Northern Germany As Greek Crisis Effects Investor Confidence

Photographer: Krisztian Bocsi/Bloomberg

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In the European Union’s fight against climate change, a potentially potent tool is the fine print of financial regulations. The EU is working to embed environmental goals in standards that could shape the spending plans of banks, money managers, insurers and member states, in the hope of directing trillions of euros to fund a radical revision of the region’s economy. Skeptics warn that some of the rules are being loosened in a way that could allow for “greenwashing.” And a fight that could pit member countries against each other is brewing over a proposal to grant natural gas and nuclear power a green label.

The EU is aiming for a 55% reduction in greenhouse-gas emissions by 2030 compared with 1990 levels and to reach net zero emissions by 2050. As part of this effort, the EU wants to raise as much as 250 billion euros ($283 billion) using its first green bonds. But Europe needs as much as 350 billion euros per year in additional financing to reach its legally binding climate goals. Setting clear rules of the road for green investments is seen as a crucial part of generating the needed flow of private capital.