A year after the European Commission's High Level Expert Group (HLEG) was initiated, the group has released their final recommendations report: "Financing a sustainable European Economy".
The HLEG assignment was to give recommendations on how to:
- provide recommendations to the EU Commission on how to better integrate sustainability considerations in the EU's financial policy framework,
- protect the stability of the financial system from risks related to the environment and its stability
- mobilize capital, notably from private resources, to finance sustainable investments and growth
The group took special care in identifying the steps that the financial institutions and supervisors should take in order to protect the stability of the financial system from risks related to the environment and how to steer the flow of public and private capital towards sustainable investments.
The Expert group consists of a broad base of members from finance and civil society.
Many but clear recommendations
So what did the group actually recommend?
Well, it had several priority actions for the EU Commision, and only some of their recommendations are mentioned in the following.
First of all the HLEG found it of utmost importance to introduce a common sustainable finance taxonomy, starting with climate change. Several private groups have taken initiative to try and classify what green bonds and green investments actually are, but a common taxonomy is really missing in the equation.
Secondly, the group suggested to clarify investor duties so as to extend the time horizons of investment and bring greater focus on environmental, social and governance (ESG) factors. Hence, the group addresses what it refers to as short-termism in financial markets, meaning that the pressure for quick returns discourages investors from holding assets for a longer period of time: " Sustainability cannot develop in a context where investment is dominated by short-term considerations," the group says.
Another strong recommendation was to empower and connect citizens with sustainable finance opportunities.
Also, the group recommended establishing a working group to look into providing guidance for environmentally friendly infrastructure projects across Europe.
There had been talk of recommending lower capital requirements for bank lending to green investments, however, this suggestion was not on the final list because the group thought it needed more research as to whether this kind of lending provides a smaller risk than traditional lending.
You can find the full report here.
Next step expected in March
The first legislation relating to an EU sustainable finance taxonomy will come as early as this spring, according to Commission Vice President Valdis Dombrovskis, who said that a green bond label will be part of its action plan and a green supporting factor is still on the table.
“First,” says Dombrovskis, “it is clear that we need a unified EU classification system – or taxonomy – for sustainable assets. This will help us define what is green and what is not green, and identify the areas where sustainable investment can make the biggest impact. This is fundamental for the development of any green finance policy.
“We will follow up this recommendation with the first piece of legislation in spring as regards the governance of this EU taxonomy.”
On the back of the recommendations of the expert group, the commission is expected to come forward with an actual action plan on March 22nd.
A plan that will encourage a European transition on track towards mitigating threats from climate change an also strengthen the struggle towards a low-carbon economy. The 2015, the Paris Climate Agreement obliged its signatories to keep global temperature increases at less than two degrees Celsius during this century. One very important way of doing this is by moving capital into more sustainable energy sources.
A bit of history
The 2015 Paris Climate Agreement was an unique historical event, uniting 200 countries from all over the world in adopting a climate agreement aiming to limit climate change by limiting global warming.
President Donald Trump of the United States surprised the world by pulling America out of the Paris Agreement in June, 2017. Amongst other things, the President said in his speech: "The Paris Climate Accord is simply the latest example of Washington entering into an agreement that disadvantages the United States to the exclusive benefit of other countries, leaving American workers — who I love — and taxpayers to absorb the cost in terms of lost jobs, lower wages, shuttered factories and vastly diminished economic production. Thus, as of today, the United States will cease all implementation of the non-binding Paris Accord and the draconian financial and economic burdens the agreement imposes on our country. This includes ending the implementation of the nationally determined contribution and, very importantly, the Green Climate Fund, which is costing the United States a vast fortune."
However in January 2018 in an interview on ITV with Piers Morgan, President Trump said that the US "could reenter the Climate agreement".