Commission’s action plan: financial world mandatory links to environmental targets

Joint press conference by Valdis Dombrovskis and Jyrki Katainen, Vice-Presidents of the EC, on initiatives from the New Capital Markets Union to promote Sustainable Finance, FinTech and Crowdfunding
Date: 08/03/2018. Location: Brussels – EC/Berlaymont. © European Union , 2018. Source: EC -Audiovisual Service. Photo: Thierry Monasse

It was last Thursday when the European Commission revealed its action plan on sustainable finance to deal with climate change. This action plan aims at mobilizing the financial world in order to achieve sustainable growth; something that the UN Environment Programme Finance Initiative has been doing for 26 years already. The huge financial gap towards the implementation of EU’s 2030 targets needs plans like this one which was proposed by the High-Level Expert Group and brought together by the EC.

Background

The EU has been showing its commitment towards a more sustainable economy and society through plans like the Energy Union, the Circular Economy Action Plan and the EU implementation of the 2030 agenda for Sustainable development. Its most recent plan on sustainable finance is meant to contribute to the fight against climate change.

This action plan kicked off back in 2016 when the EU’s executive body created a High-Level Expert Group on sustainable finance which consisted of experts from civil society, the financial sector, academia and observers from European and international institutions. The Group published a report two months ago and concluded on eight recommendations which were transformed by the EC into an action plan.

Financial sector’s support a prerequisite for greener economy

The EU has committed to reduce its greenhouse gas emissions by 40% by 2030 which is translated into 180 billion euros of additional investments per year. The financial system should be able to contribute to this climate target and support it sustainability according to Valdis Dombrovskis.

More specifically, the Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union mentioned: “Inspired by the work of the High-Level Expert Group, we are today presenting our plans for a far-reaching reform that could set the global benchmark for sustainable finance. Only with the help of the financial sector can we fill the annual €180 billion funding gap to reach our climate and energy targets. This will help to support a sustainable future for generations to come.”

Furthermore, First Vice-President Frans Timmermans underlined that a cleaner economy could reduce unemployment and improve environmental conditions. In detail, Frans Timmermans said: “Moving to a greener and more sustainable economy is good for job creation, good for people, and good for the planet. Today we are making sure that the financial system works towards this goal. Our proposals will allow investors and individual citizens to make a positive choice so that their money is used more responsibly and supports sustainability.”

EC’s action plan

The main areas of the sustainable finance strategy will be a unified EU classification system where green financial products will be marked with labels and sustainable investments will be further promoted.

Particularly, the EC’s goal is to create a common definition for sustainability and target sectors where the financial impact will be greater. The EC plans also to intervene in the asset managers and investors’ job by making sure that sustainability is taken into consideration in the investment procedure.

Moreover, the EC’s roadmap will ensure that investment companies advise their clients on sustainability according to their preferences and improve transparency in corporate reporting by altering the guidelines on non-financial information in order to be in line with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures.

The above plan and the aforementioned investments could be beneficial to the climate. As Miguel Arias Cañete, Commissioner for Climate Action and Energy, said last Thursday: “Global investments hold the key to fighting climate change, with trillions already invested in solutions such as renewables and energy efficiency. The Paris Agreement is a massive investment opportunity. How can we unlock it? Today’s action plan will help Europe’s financial sector position itself as a leading global destination for investments in green technologies.”

The European Fund and Asset Management Association stated though that, even if this is in favor of the actions taken by the EC on sustainability, it disagrees with the plan to force asset managers to “consider sustainability in the investment process” and supports that “sustainability objectives have to be driven by asset owners”.

However, the UNEP FI, which is a partnership between United Nations Environment and the global financial sector (more than 200 financial institutions), has been implementing similar actions for 26 years now showing that green finance is highly efficient.  More specifically, Erik Solheim, UN Environment Executive Director, said on UNEP FI’s 25th anniversary: “UN Environment’s Finance Initiative has been working for 25 years to bridge the gap between global finance institutions and the environmental agenda, so that both people and planet can flourish. We’ve worked with leading banks, investors and insurers, forging partnerships and steadily helping to move the markets. We’ve now reached a place where greening finance, and financing a green economy, are no longer seen as optional, but rather as best practice.”

All in all, the EC’s action plan on sustainable finance is much needed to support EU’s fight against climate change the moment when governments are encountering problems to provide additional funds to meet EU climate goals. It remains to be seen how long it will take till the implementation of this good strategy as the EC will convene on March 22 to discuss about its action plan.

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Press conference by EC Vice-Presidents Valdis Dombrovskis (left) and Jyrki Katainen, on the Commission's proposals in the framework of the financial union (Source: EC Audiovisual Services / Copyright: EU, 2018 / Photo by Georges Boulougouris)

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