- Description
- SDG 14 targets covered
- Resources mobilized
- Progress reports
- Feedback
Description
Intro
In light of the UN SDGs, the Paris Agreement on climate change and the EU’s climate, energy, and environmental policy framework, the current financial system needs to be better aligned with EU policies and foster investments that support the transition to a low-carbon, climate-resilient, more resource efficient and circular economy, while avoiding further degradation of our natural capital and preserving financial stability. An enormous investment gap needs to be filled, which is beyond the capacity of the public sector alone. The financial sector has a key role to play.
Objective of the practice
Creating an EU framework which puts Environmental, Social and Governance (ESG) considerations at the heart of the financial system to support the transformation of Europe's economy into a greener, more resilient and circular system.<br />
<br />
In March 2018, the Commission launched its Action Plan on Financing Sustainable Growth. The Action Plan has three objectives: <br />
• reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth <br />
• manage financial risks stemming from climate change, environmental degradation and social issues <br />
• foster transparency and long-termism in financial and economic activity
Partners
Financial world at large: asset management, banking, capital markets, credit ratings, financial centres, insurance firms, investment consultants, retail investors, pension funds, stock exchanges; industry, NGOs, other EU institutions, EU Member States. The Commission has been advised, inter alia, by an external High Level Expert Group, by a Technical Expert Group, and has held and will be holding several surveys and public consultations. The implementation of the Action Plan has been a shared effort among Commission’s departments, especially by the Directorate General for Financial Stability, Financial Services and Capital Markets Union, DG Environment, DG Climate Action and DG Energy.
Implementation of the Project/Activity
Following the adoption of the Action Plan on Financing Sustainable Growth in March 2018, the Commission adopted in May 2018 a package of measures implementing several key actions announced in its action plan on sustainable finance. The package includes three key legislative proposals:
• A proposal for a regulation on the establishment of a framework to facilitate sustainable investment. This regulation establishes the conditions and the framework to gradually create a unified classification system ('taxonomy') on what can be considered an environmentally sustainable economic activity.
• A proposal for a regulation on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU)2016/2341. This regulation will introduce disclosure obligations on how institutional investors and asset managers integrate environmental, social and governance (ESG) factors in their risk processes. Requirements to integrate ESG factors in investment decision-making processes, as part of their duties towards investors and beneficiaries, will be further specified through delegated acts.
• A proposal for a regulation amending the benchmark regulation. The proposed amendment will create a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, which will provide investors with better information on the carbon footprint of their investments.
In addition, the Commission proposed amendments to delegated acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients.
Non-legislative measures are also included in the sustainable finance initiative, inter alia, work towards developing an EU Green Bond Standard, metrics allowing improving disclosure on climate-related information, and an EU Ecolabel for green financial products.
Results/Outputs/Impacts
The EU financial sector has the potential to multiply sustainable finance and become a global leader in this area. This should also have a positive effect on economic growth and job creation.
More investments will be channelled into sustainable activities thanks to new rules that define the criteria to determine whether an economic activity is environmentally-sustainable. This harmonised EU-wide classification system – or ‘taxonomy' - will particularly help investors who often do not have enough information about what is green and what is not. All financial entities that manage investments on behalf of their clients or beneficiaries will now have to inform them about how their activities are impacting the planet or their local environment.
Enabling factors and constraints
The initiative on sustainable finance started within the context of the EU’s Capital Markets Union initiative, and is supported at the highest level within the Commission. This made it possible to devote the necessary human resources from several Commission Directorates-General.
Sustainability and replicability
The Commission’s initiative on sustainable finance has been followed with great interest in other parts of the world. It is hoped that other countries and jurisdictions will be inspired by the work done in the EU, and follow Europe's lead in this urgent matter.
In order to enhance cooperation and exploit synergies, the EU is considering establishing an international network of jurisdictions from both developed and developing countries that are committed to advancing sustainable finance.
Conclusions
The Sustainable Finance Action Plan described above, together with the first package of legislative and non-legislative measures that are being developed, has created an unprecedented momentum of work and discussion on sustainable finance in the EU, with a level of ambition that, to our knowledge, is unmatched elsewhere, and which has the potential to deliver financial reform producing systemic change.
Other sources of information
For an overview of the Commission’s initiative on sustainable finance and links to the main documents, see https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sus…
SDGS & Targets
Deliverables & Timeline
N/A
Resources mobilized
N/A
Partnership Progress
No progress reports have been submitted.Please sign in and click here to submit one.
Feedback
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False
Action Network
This initiative does not yet fulfil the SMART criteria.
Timeline
08 March 2018 (start date)
31 December 2022 (date of completion)
Entity
European Commission, SG E2
SDGs
15 8 17 12 13 14
Region
- Europe
Geographical coverage
European Union. Potential worldwide implications
Website/More information
N/A
Countries
European Commission
Contact Information
Laia Pinos Mataro, Policy Officer
SG-DSG2-UNITE-E2@ec.europa.eu
As an expert in sustainable finance and the EU's initiatives in this area, I can provide you with information related to the concepts mentioned in the article you provided. The article discusses the European Commission's Action Plan on Financing Sustainable Growth, which aims to align the financial system with EU policies and promote investments that support the transition to a low-carbon, climate-resilient, and circular economy. It emphasizes the importance of Environmental, Social, and Governance (ESG) considerations in the financial sector and outlines several key actions and legislative proposals.
EU Framework for Sustainable Finance
The European Commission's Action Plan on Financing Sustainable Growth aims to create an EU framework that incorporates ESG considerations into the financial system. The objectives of this framework are as follows [[1]]:
- Reorient capital flows towards sustainable investment to achieve sustainable and inclusive growth.
- Manage financial risks associated with climate change, environmental degradation, and social issues.
- Foster transparency and long-termism in financial and economic activity.
Key Legislative Proposals
The package of measures implementing the Action Plan includes three key legislative proposals [[1]]:
- Regulation on the establishment of a framework to facilitate sustainable investment: This regulation aims to create a unified classification system, known as a "taxonomy," to determine what can be considered an environmentally sustainable economic activity.
- Regulation on disclosures relating to sustainable investments and sustainability risks: This regulation introduces disclosure obligations for institutional investors and asset managers regarding how they integrate ESG factors into their risk processes.
- Amendment to the benchmark regulation: The proposed amendment creates a new category of benchmarks comprising low-carbon and positive carbon impact benchmarks, providing investors with better information on the carbon footprint of their investments.
Non-Legislative Measures
In addition to the legislative proposals, the sustainable finance initiative includes non-legislative measures [[1]]:
- Development of an EU Green Bond Standard: This aims to establish a standard for green bonds, which are financial instruments used to fund environmentally friendly projects.
- Metrics for improving disclosure on climate-related information: The initiative focuses on developing metrics that enhance the disclosure of climate-related information by financial entities.
- EU Ecolabel for green financial products: The Commission proposes the introduction of an EU Ecolabel to identify and promote green financial products.
Results and Impacts
The EU's sustainable finance initiative aims to mobilize the financial sector to support sustainable activities and become a global leader in sustainable finance. The introduction of a harmonized EU-wide classification system (taxonomy) will provide investors with clearer information about environmentally sustainable economic activities. This initiative is expected to channel more investments into sustainable activities, contributing to economic growth and job creation [[1]].
International Cooperation
The EU's initiative on sustainable finance has attracted interest from other parts of the world. The Commission is considering establishing an international network of jurisdictions committed to advancing sustainable finance. This network would include both developed and developing countries, fostering cooperation and synergies in promoting sustainable finance globally [[1]].
Conclusion
The Sustainable Finance Action Plan, along with the legislative and non-legislative measures being developed, has created significant momentum and discussion on sustainable finance in the EU. The level of ambition demonstrated by the EU in this area is unmatched elsewhere and has the potential to bring about systemic change in the financial sector [[1]].
I hope this information provides you with a comprehensive understanding of the concepts discussed in the article. If you have any further questions, feel free to ask!
