What are sustainable economic activities and who defines them? A deep look into EU policy making on sustainable finance and forests – new paper published

To work towards such dreams is the ambition of the so-called EU Taxonomy. The EU taxonomy has been considered as Europe’s flagship initiative to govern sustainable finance. As pointed out by the European Commission, a 'cornerstone of the EU’s sustainable finance framework' is to 'direct investments to the economic activities most needed for the transition, in line with the European Green Deal objectives'. It does so by 'defining criteria for economic activities that are aligned with a net zero trajectory by 2050 and the broader environmental goals other than climate'. Most importantly, it aims to establish 'a common language and a clear definition of what is sustainable'.

A recently published article in Global Environmental Change investigates the policy making process towards the EU Taxonomy. Based on a rich set of interviews with policy experts and document analysis, the paper specifically investigates the political powerplay relating to the formulation of criteria for sustainable investments in forests and forestry.

It identifies two major groups of actors/lobbies in the process that hold fundamentally different ideas of what sustainability means relating to forest investments. The first coalition is labelled the environmental coalition; it consists of environmental and consumer protection groups, advocates for adopting 'transformative' sustainability criteria in view of advancing biodiversity protection and climate change mitigation. The second coalition, the forestry and bioenergy coalition, consisting of forest sector interest groups, argues for sustainability criteria that are aligned with current forestry practices, including industrial forestry, to enable – or at least not constrain – investments in that sector.

The paper traces the process of the political controversy, involving strategies such as purposeful framing of arguments, direct interventions by heads of governments, the use of science and counter-science, and attempts to make political 'deals' involving horse trading across economic sectors. As a result of opposed interests and views on what a sustainability transition could mean for forests, a 'common language' and 'clear definition of what is sustainable' could not be achieved, and the transformative ambition of the EU Taxonomy for forests remains vague to this day.

Pairing analysis with recommendations is difficult as this is inevitably connected to the question of what kinds of transformation are desirable for forests. Yet, the paper not only points to the necessity to increase transparency of EU policy making to avoid full capture by special interest groups, but also reflects on the necessity of a different role for science in such processes, more in line with an honest broker approach than (stealth) advocacy.

This study is one of the first published studies on policy making in relation to sustainable/green finance. It sheds light into attempts to regulate both the finance and the forest sector, and with that into the fundamental policy mechanisms driving or preventing sustainability transformations in both the finance and the natural resources sectors in Europe and beyond.

The paper The Politics of Sustainable Finance for Forests: Interests, beliefs and advocacy coalitions shaping forest sustainability criteria in the making of the EU Taxonomy can be read here.

- by Georg Winkel

The lead author of the paper, Anna Begemann, obtained her PhD at the Forest & Nature Conservation Policy group in 2024 as an external researcher working with the European Forest Institute. Her full PhD thesis can be found here. Georg Winkel is the chair holder of the Forest and Nature Conservation Policy Group.