The EU has agreed new rules on which financial products can be labeled as green.

A categorization system, called ‘the taxonomy for sustainable activities’, agreed by the European Parliament aims to reduce greenwashing  and will impact green bonds, loans and other products. The rules will include definitions for sustainable investment across the EU making the region a world leader in sustainable finance, according to EU lawmaker Bas Eickhout.

Financial products will be classified into three levels with full disclosure also being required on  funds based on EU criteria. The levels are: green, enabling and transition. Green will cover mainly renewables, enabling and transition will cover investments that help reduce emissions.

The agreement now awaits approval by the European Commission but is expected to come into force in 2021.