(Refiles to remove typo in para 1) July 6 (Reuters) - The European Union said on Tuesday it will harness banks and markets to funnel hundreds of billions of euros annually into sustainable investments and create the first “climate-neutral continent” by 2050. The EU’s sustainable finance strategy sets out detailed milestones and measures for the financial sector, companies and households to reach the bloc’s climate goal. “As the scale of investment required is well beyond the capacity of the public sector, the main objective of the sustainable finance framework is to channel private financial flows into relevant economic activities,” the EU’s executive European Commission said. It builds on an EU initiative in 2018 which set the stage for the bloc’s ‘taxonomy’ or classification of truly green investments, and mandatory climate-related disclosures by companies. As reported by Reuters last month, EU states will be asked to assess by June 2023 how their financial markets contribute to reaching the bloc’s climate goals of eliminating its net emissions by half way through the century, covering asset managers, pension funds, banks and insurers. EU authorities and the European Central Bank will then calibrate the right pace for the transition by setting intermediate targets for the financial sector. The EU executive said it will also propose changes to bank rules so that environmental, social and governance (ESG) factors are core to managing risks on their books. The bloc’s banking watchdog will bring forward to 2023 its ongoing assessment of capital charges for exposures to environmental and social activities. Insurance capital rules may also be similarly amended. Macroprudential tools, which typically involve sector-wide capital requirements may also be needed to threats to financial stability from climate change. GREENWASHING CRACKDOWN “The Commission will consider and assess further measures to enable all relevant financial market participants and advisers to consider positive and negative sustainability impacts of their investment decisions, and of the products they advise on a systematic basis,” it said. The EU executive published proposals for voluntary standards for “green” bonds that finance sustainable investments. The Commission confirmed it will publish taxonomy rules later this year for agriculture, certain industries and possibly nuclear energy. It will also consider new legislation to support energy sources that could help cut emissions, including gas power plants, it said. EU countries are split over whether gas deserves a green label. Some states say it should be supported to help countries quit more polluting coal, while others say labelling a fossil fuel as “green” is not credible. Brussels said it will consider action to improve comparability and transparency in the ESG corporate rating. Regulators have said the ratings are too opaque and could be contributing to “greenwashing” or companies overstating their green credentials to attract investors. The strategy seeks to empower individuals and the bloc’s 23 million small companies by defining green loans and mortgages by 2022. New accounting rules may also be needed to “recognise and report” climate and environmental risks in financial statements, it said. ($1 = 0.8443 euros) Additional reporting by Kate Abnett in Brussels, editing by William Maclean Our Standards: The Thomson Reuters Trust Principles.