The Role of the EU Taxonomy

The chapter delves into the pivotal role of the EU Taxonomy in shaping the ECB’s approach to a sustainable economy. It begins by highlighting the necessity for clear sustainability definitions in financial markets, leading to the establishment of the EU Taxonomy. The historical background and the key objectives of the Action Plan for Financing Sustainable Growth are discussed, emphasizing the creation of benchmarks and the European Fund for Strategic Investments. The chapter also explores the implications of the Taxonomy Regulation on bond purchases and quantitative easing, arguing for a climate-friendly strategy. It further analyzes the impact of the taxonomy on risk management and stress testing in banks, showcasing how it facilitates more reliable figures and better preparation for climate-related financial risks. The chapter concludes by emphasizing the taxonomy's role in defining environmental sustainability and its immediate use for the ECB, making it a critical tool for shaping sustainable monetary policy.