On Thursday 8 March, the European Commission presented its first action plan on sustainable finance, which sets out (non-) legislative measures to be deployed between now and the second quarter of 2019 to make the EU into a leader in this field. The aim is to create the conditions and incentives to encourage investors to finance in projects that are better for the planet.
The EU strategy comprises ten actions, the vast majority of which were already included in the final report of the high-level expert group (see EUROPE 11951), which was partly unveiled by the European Commissioner for Financial Services, Valdis Dombrovskis, in December (see EUROPE 11924).
Setting in place a European taxonomy first of all
For the foundations of its strategy, the EU first of all needs “common language”, in other words a European taxonomy to define the concept of sustainability in the finance sector. The Commission intends to start work on this in May 2018, by means of the proposed regulation that will define the “principles and scope” of this taxonomy, and in order to be able to include it in Community law.
An expert group taxed with putting together this taxonomy will be set up this year, with a call for applications published on Thursday. The aim is to report back with an initial taxonomy of climate change attenuation activities by the first quarter of 2019, to be subsequently expanded to include climate change adaptation activities in the second quarter.
Once this work has been done, the Commission will submit a draft delegated act to set in place this unified classification proper, but it will not be possible to adopt this before the next legislative period. According to a European source, it may in fact move faster than anticipated, as the dossier is a “very popular” one.
The Commission may get to work in earnest once this stage is complete.
Creating EU labels for ‘green’ financial products
Then, the Commission plans to look into the possibility of using the EU eco-label for certain financial products. The expert group will be asked to propose a European standard for ‘green’ bonds in 2019. The Commission will then adopt a delegated act on the content of the prospectus for issuances of ‘green’ bonds.
Also to be tabled in May 2018 will be a legislative proposal on sustainability requirements upon institutional investors and asset managers.
Caution over concept of “green supporting factor”
The controversial idea of a “green supporting factor” is still in the action plan. However, the Commission is playing it safe, stating that it will consider whether there is a need to recalibrate the capital requirements applicable to banks, where justified from the risk point of view, whilst taking steps to preserve financial stability.
“We need more concrete facts before we act”, the Commissioner for Growth, Jyrki Katainen, told the press. Before proposing a legislative text, the Commission will look at all the available evidence, such as the link between energy efficiency savings and the performance of mortgage loans.
At the moment, however, specific discussions on this subject have not taken place at the Commission, but at the European Parliament. The idea was tabled by Peter Simon (S&D, Germany) in the framework of the negotiations on the banking risk reduction legislative package, which has the notable opposition of the Greens/EFA group (see EUROPE 11958).
First reactions. The initial reactions of the stakeholders suggest that the Commission’s ambition is up to expectations. However, the devil is in the details, and they will need more time to go through the twenty pages of the action plan with a fine-tooth comb.
The organisations Invest Europe and PensionsEurope have already warned that any legislative initiative should leave sufficient flexibility in light of the broad range of actors targeted.
Markus Ferber (EPP, Germany) was much more critical, damning the idea of a green supporting factor as dangerous. He considers that only the risk should be taken into account when calculating banks’ capital requirements. “If, in the Commission’s view, the Capital Markets Union now only means sustainability, then President Juncker’s prestigious project is a total failure”, he said.
On Thursday 22 March, the Commission will hold a conference to be attended by its President, Jean-Claude Juncker, the French President, Emmanuel Macron, and the UN special envoy for climate action, Michael Bloomberg.
The action plan is available at: http://bit.ly/2G4Z4Fh . (Original version in French by Marion Fontana)