The European Commission’s implementation of the 2018 Sustainable Finance Action plan has gained new momentum. Beyond the development of a sustainable finance taxonomy, financial actors now must abide by new disclosure regulations. “As of 10 March 2021, investors must disclose how they take sustainability risks and adverse impacts into account in their investment decisions”, tweeted Martin Spolc, Head of Unit for Sustainable Finance at the European Commission.
“This is excellent news”, praised Philippe Zaouati, CEO of Mirova and former member of the High-Level Expert Group on sustainable finance, which prompted the Europeanisation of the well-known Article 173 French law. “The text is very interesting because, for the first time, we have a clear definition for both dimensions of sustainable finance; that of the environmental and social impact from sustainable management using specially adapted indicators and that of ‘materiality”, meaning the financial evaluation of ESG (Environmental, Social and Governance) risks, starting with climate change”, affirmed Zaouati.
Defining a common framework
Will the plan’s clarity on European regulation allow reporting requirements to define the framework that all sustainable finance actors must respect? Zaouati hopes so, stating, "as several large French management companies are of a European size, we can assume that they will want to align with what should become a uniform standard across the Union. But in light of French national debates amongst many opposing sides, resistance is likely."
The plan insists that it is time to put an end to the "divergent disclosure standards and market-based practices [that] make it very difficult to compare different financial products and services, create unfair conditions for different financial products and services, manufacturers and distribution channels, and erect additional barriers to the internal market. Divergences are also confusing to end-investors and distort their investment decisions and reduce opportunities for sustainable investments.”
One final important point is that these regulations extend to all financial advisors, which on one hand potentially changes the scale. On the other hand, it casts doubt on the implementation of the system in various European countries, especially those where sustainable finance is a poorly known concept that lacks a solid product offering for investors.
Anne-Catherine Husson-Traore, , CEO of Novethic