Published on 27 May 2019

SUSTAINABLE FINANCE

[Europe] The European union: a motor in the development of sustainable finance

European institutions deserve much credit for the recent momentum around sustainable finance. In less than three years, it has become a major focus of the Commission's financial markets policy. It is likely to transform the European economy, provided that differences of opinion between Member States do not block the entire process. To mark the upcoming European elections, Novethic invites you to review the substantive and ongoing progress achieved within the European Union.

Olivier Guersent, Managing Director for Fisma, during Sustainable Finance Day.
@LaureneChevanat/Twitter

In early 2017, the term "sustainable finance" was almost non-existent on Google. Today it generates nearly 400 million results, with the first being associated with the European Commission. To get to this level, the European Union developed a strategic recipe that has been copied in other parts of the world.

The first ingredient: the creation of a high-level expert group, in which I had the honor of participating, that brings together finance professionals, NGOs and practitioners. Their mission is to create recommendations that allow sustainable finance to gain as much ground as possible. The Commission has included many well-known public figures with strong influence in its High-Level Expert Group (HLEG) on sustainable finance, including Pascal Canfin, former Head of WWF France, Christian Thimann, member of the TCFD and Sean Kidney, founder of the Climate Bonds Initiative. They later became the ambassadors of the European Commission’s strategy and the chosen method, which helped give visibility to a subject considered hitherto as highly technical and sectoral.

While the creation of thematic HLEGs is a classic European process, similar initiatives have been launched in other countries such as Canada and Australia. The latest country to adapt similar measures in sustainable finance is Germany.  Unofficially, the country is forming an ad hoc group within its Sustainable Development Council. According to ResponsibleInvestor.com, the German group will consist of at least thirty people: representatives for investors and NGOs as well as large German companies such as BMW and BASF.

Keeping sustainable finance at the top of the agenda

The second ingredient: an air-tight agenda that will not let momentum fall and facilitate political pressure. It took less than six months for the Commission to publish its action plan (March 2018), then create the first legislative package (May 2018) and finally select the technical groups responsible for implementing the action plan (June 2018). The prospect of the European elections taking place this Sunday has served as an accelerator and helped build consensus amongst the outgoing parliament on reporting obligations, for example.

This did not elevate all roadblocks, far from it. However, this initiative helps keep sustainable finance at the top of the agenda. It is also highlighted by the publication of reference documents for public consultation and a compilation of global sustainable finance events like the one organized on March 21st in Brussels.

The third ingredient: proposing a mechanism that allows sustainable finance to contribute to the reorientation of the European economy towards low-carbon models that are more respectful of people and the environment. This is the goal of a classification system. As the backbone of the European Action Plan, it aims to provide EU Member States with a common definition of the activities considered “sustainable”.

Looking beyond Europe

The classification system should serve as a base for following standards and labels intended to give credibility to so-called sustainable finance product offers, but also to push companies into publishing their percentage turnover aligned with the corresponding classifications. Negotiations between Member States are continuing within the European Council. Many states hinder the process. They are afraid to see the share of unsustainable activities of European companies displayed publicly and are all the more cautious that sustainable finance has not been developed in all European countries. This sentiment is especially present in France, the Netherlands and northern countries.

If the negotiations go through as planned by the end of the year, the future classification system should be shared with other regions of the world. Canada has mentioned this possibility and Europe has initiated dialogue with China, which already has their own system to share. All that remains is to engage European citizens. Citizen investors should be able to have a European eco-label designated for financial products. This is being created, but the results during Sunday’s elections in favour of political parties with a strong ecological position will be decisive in continuing European momentum in sustainable finance.

Anne-Catherine Husson-Traore,  @AC_HT, CEO of Novethic


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