Today the EU Commission published a legislative package to complete the Capital Markets Union. The legislative proposals on sustainable finance include a framework for the development of a classification (taxonomy) of sustainable investments, fiduciary duties and disclosure rules for institutional investors, benchmarks and client advice on sustainability. The precise content of the classification will be developed by a technical expert group in the course of next year. The Commission’s proposals are part of a comprehensive strategy to make financial markets more sustainable and resilient against future crises and to channel additional investment into sustainable projects. To become effective, the Commission’s proposals must now be adopted by the European Parliament and the Council of Member States.
MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:
„Europe is leading the green financial markets. Europe can become the lead market for sustainable financial products if we set the new standards courageously. Sustainable financial markets are more stable because risky assets such as investments in climate-damaging industries come earlier under pressure and shock-like divestments are prevented in the future. All companies are regularly scrutinized for their sustainability. This increases the incentives for social and ecological modernization of business models in all sectors of the economy. Pensions and savings must be invested in climate-friendly projects, investments in nuclear and coal-fired power plants have had their day. Our constant pressure for promoting green financial markets is finally bearing fruit. The European Commission has taken up many of the demands of our Green initiative report on sustainable finance. It is high time for clear common definitions and standards so that this young market can continue to prosper. Many financial market players now share this view. By contrast, it is welcome that the reduction of capital requirements for green investments is no longer an issue for the time being. Capital relief is only justified if the lower risk of a green investment is proven.
The technical working group responsible for the contents of the classification must explicitly exclude environmentally harmful investments from the definition of sustainable investments. Nuclear power, coal-fired power plants or fossil infrastructures have no place in a sustainable financial product because they can ruin the reputation of this young market. The Commission should soon deliver on its promise to include other environmental, social and governance factors (ESG) in addition to climate-related factors, as proposed for classification today. We particularly welcome the planned classification as a basis for the future label for sustainable financial products, which would make it easier for consumers to distinguish between sustainable investments. In the very near future, we expect a proposal for such a label which the Commission has not included in today’s proposals.
We welcome the fact that institutional investors should in future include sustainability criteria in their investment decisions. In its legislative proposal, the Commission has left out financial institutions. This is a clear request to Parliament to make bold proposals in the current overhaul of banking legislation.
The Commission’s proposal to clarify how client advice for sustainable investments can be improved is a step in the right direction. In the future advisors should systematically inquire about their clients‘ sustainability preferences and take them into account when making investments.“
The European Parliament’s Economic Committee’s own-initiative report on sustainable finance (endorsement by the plenary is scheduled for 29 May):
How the Sustainable Finance Action Plan came about (Video of the hearing on the appointment of Finance Commissioner Dombrovskis):