CYIL vol. 13 (2022)

MONIKA FEIGERLOVÁ CYIL 13 ȍ2022Ȏ adopting a ‘governance approach to green investment’ and providing guidance instead of setting standards. 54 The rationale for this approach is the continuous development of scientific knowledge, and innovations in clean technologies that are being developed to deal with climate change. Any green definitions would thus need to be updated over time. 55 Other initiatives, such as the UN Principles for Responsible Investment neither provide for a specific definition nor set specific standards. Similarly, the academic Model Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation 56 avoids a universally applicable definition of low-carbon investment. The proponents of the Model Treaty explain 57 that such an approach will give more flexibility and greater political feasibility to States and at the same time predictability in the legal regime to investors. This flexible method of defining investments that are desirable from a national climate policy standpoint respects the different and evolving national contexts, levels of climate ambition, and frameworks for climate action in a particular State. 58 The European Commission has decided to take a different direction. It sought to construe a common definition of sustainable activities or to create a green standard. In 2018, a proposal for a unified EU classification system (‘Taxonomy’) on what can be considered an environmentally sustainable economic activity was adopted. 59 The Taxonomy Regulation of 2020 sets EU-wide criteria to decide whether an economic activity is environmentally sustainable. 60 As the Taxonomy could inspire States for adopting a common definition of green investment that will benefit from investment treaty protection the below text will briefly introduce the Taxonomy and how a Taxonomy-aligned investment would look like. The EU Taxonomy and Taxonomy-Aligned Investment The EU Taxonomy is a classification system that sets criteria for economic activities to be considered ‘environmentally sustainable’ (green) for investment purposes. The EUTaxonomy Regulation is effective in part from 1 January 2022. It aims to increase transparency and consistency in the classification of activities, including for reporting purposes, to prevent ‘greenwashing’ and help direct investment in sustainable projects in order to meet EU environmental objectives and the Green Deal. 61 The Taxonomy provides financial market participants, financial institutions, investors, asset managers, citizens, and policy makers with a common language. The EUTaxonomy does not oblige investors to invest in such economic 56 BRAUCH, M. D. et al. Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation: Aligning International Investment Law with the Urgent Need for Climate Change Action. Journal of International Arbitration . 2019, no. 36(1), pp. 7–35. 57 BERNASCONI-OSTERWALDER, N., BRAUCH, M. D. Redesigning the Energy Charter Treaty to Advance the Low-Carbon Transition. TDM . 2019, no. 1, p. 12. 58 Ibid. The Model Treaty though contains illustrative examples of sustainable investments, such as renewable energy and related research and development; recycling and activities to avoid food waste and deforestation. In contrast, the unsustainable investments include coal, oil, and gas. 59 European Commission. Commission legislative proposals on sustainable finance. 24 May 2018 May. Accessible at: https://ec.europa.eu/info/publications/180524-proposal-sustainable-finance_en#investment. 60 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088. 61 Commission Communication on the European Green Deal, 11 December 2019, COM (2019) 640 final. 54 Ibid., p. 5. 55 Ibid., p. 7.

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