The European Union agreed on Thursday on a new law that forces asset managers, insurers and pension funds to disclose environmental risks in their investments.
The law is meant to spur green investment and to curb "greenwashing", a practice whereby companies claim to be more environmentally friendly than they really are.
The agreement reached by EU governments and EU lawmakers will also introduce transparency requirements on the social consequences of investment decisions.
"The EU is today setting out a transparency framework to make sure that investors are well informed of the environmental and social impact of their investments," said Eugen Teodorovici, Minister of Finance for Romania, which currently holds the EU presidency.
The new law, which now needs a few final procedural steps before it can enter into force, sets uniform rules on how financial firms should inform investors about environmental and social risks and opportunities linked to investments.
Financial managers will have to disclose, for instance, investments in assets that could pollute water or damage bio-diversity.
The new rules are part of a package of measures meant to help the EU to achieve its targets in countering global warming, for which the commission has estimated that 180 billion euros ($203.4 billion) a year in additional investment will be needed for the next two decades.
As part of this package, EU states and lawmakers are also negotiating a legal text to establish a unified EU classification system of sustainable economic activities which would set out the criteria for labelling investments as "green".
($1 = 0.8847 euros)