Sven Giegold

New chances, old risks: The way forward for Sustainable Finance in Europe

Today, 6 July 2021, the EU Commission has presented its Renewed Sustainable Finance Strategy. Both Finance Commissioner Mairead McGuinness and her predecessor Valdis Dombrovskis had committed to us Greens in their inaugural hearings in the European Parliament to present a new strategy paper on Sustainable Finance. The Commission is continuing the European Sustainable Finance Agenda, which it had launched in 2018 with its first Action Plan.

Large parts of its 2018 Action Plan have been implemented by the EU Commission in recent years, in particular the adoption of the EU Taxonomy. The strategy presented today contains only two major legislative initiatives: First, the revision and significant expansion of non-financial reporting, for which the Commission already presented its plans for a Corporate Sustainability Reporting Directive in April. Second, a voluntary Green Bond Standard based on the EU Taxonomy, which the Commission is presenting today together with the strategy. In addition, the strategy announces various targeted adjustments to existing financial markets legislation. In particular, sustainability risks will finally be integrated in the supervisory frameworks for banks, insurance companies and rating agencies in a binding manner. We Greens had been calling for this for years. Concretely, for banks ESG risks are to become a mandatory part of risk management and the supervisory process within the framework of the Supervisory Review Process (SREP). In addition, banks should carry out stress tests on their climate and other long-term risks. Insurance companies are also to conduct such climate stress tests in the future. With regard to rating agencies, the EU Commission plans to take measures to ensure that ESG risks are taken into account in credit ratings.

With various smaller initiatives and possibly even a stand-alone legislative proposal, the EU Commission wants to create an additional framework for transition activities, especially for the use of fossil gas. In particular, the Commission is considering an expansion of the Taxonomy framework and the creation of additional sustainability labels and standards for transition activities. This is primarily intended to appease the Eastern European member states, which in recent months have vehemently lobbied for gas-fired power plants and infrastructure to be included in the Taxonomy.

Unfortunately, the strategy presented today does not contain any concrete plans for a social Taxonomy. Furthermore, on the question of whether the jungle of private ESG ratings should be given a regulatory framework, the Commission only announces further investigations for the time being. The planned eco-label for financial products, which the Commission has been working on for some time, is not mentioned at all in the strategy.


MEP Sven Giegold, financial and economic policy spokesperson of the Greens/EFA group commented:

“With the new strategy, the EU Commission continues the Sustainable Finance agenda in Europe. Much has been achieved since the action plan three years ago. The unfulfilled promise so far is the consistent consideration of ESG risks in the financial sector. It is an important step that this will now be made mandatory for banks, insurance companies and rating agencies. It is important that the EU Commission now quickly presents consistent and comprehensive rules for the consideration of ESG risks. The EU Commission should also extend the rules to all financial actors and thus ensure the mainstreaming of ESG risk management throughout the financial sector.

The Green Supporting Factor is the eternal undead of the European Sustainable Finance project. In the new strategy, it lives on as a supporting tool for green consumer credit. We Greens have already made clear in the past: Financial market regulation must be based on real risks and must not be misused as an instrument of economic promotion. A lower risk weighting for green investments is only justified if the risks are also demonstrably lower. In the same way, surcharges are needed for increased sustainability risks.

The stronger consideration of fossil gas as a transitional technology is a misguided approach. While the world’s forests are burning, the EU Commission is indulging in an amour fou for pipelines and gas-fired power plants. These proposals are completely out of date. The EU Commission is channelling investments into facilities that will not even come close to reaching their full lifespan. In this way, it is delaying the urgent transformation of the European economy towards true climate neutrality. In this way, the EU Commission is also doing a disservice to the Eastern Europeans, whose gas lobby is behind the proposals. At the same time, the EU Commission is damaging the credibility of the entire European Sustainable Finance project. The EU Commission must not give in to the pressure of the Eastern European member states. Sustainable Finance must provide incentives for real modernisation, not for greenwashing.

Today, the EU Commission is missing another chance to put more emphasis on the social aspects of sustainability. Instead of presenting concrete proposals and timetables for a social Taxonomy, the Commission only wants to explore the topic for the time being. Yet there is a great demand for socially responsible investments, especially among retail investors. Here, too, we need binding and credible standards to prevent social whitewashing of financial products.

With the Green Bond Standard, the EU Commission is finally presenting a public standard for green bonds. This is a credible alternative to the often lax private standards. The proliferation of private standards threatens the credibility of Sustainable Finance. However, a voluntary standard will not end the greenwashing of private standards. The Commission should protect the term “green bond” and make the application of its standard mandatory in the EU.

The Sword of Damocles hanging over the EU’s Sustainable Finance agenda is nuclear power. The EU Commission has not yet decided whether to propose a sustainability label for nuclear power in the Taxonomy. In view of the unsolved problem of final disposal of radioactive waste, nuclear power cannot possibly be considered sustainable. The EU Commission must firmly reject the vehement demands from the Elysée Palace. Anything else would fundamentally damage the credibility of the entire European Sustainable Finance project.”




The Renewed Sustainable Finance Strategy of the EU Commission:



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Category: Economy & Finance

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