The European Commission is determined to expand the EU’s toolbox for sustainable finance, according to a draft version of its revised strategy on sustainable finance obtained by EUROPE, which is due to be formally presented on 6 July, along with its proposal for a voluntary European standard on ‘green’ bonds (see EUROPE 12745/8).
“An inclusive economic transformation and recovery from the Covid pandemic requires massive amounts of private finance directed towards the transition to a sustainable economy”, the paper says.
Indeed, Europe will need an estimated €350 billion additional investment per year over this decade to meet its 2030 emissions-reduction target in energy systems only, alongside €130 billion for other environmental goals.
The revised strategy builds on the 2018 Action Plan (see EUROPE 11977/2) and identifies key areas where further action is needed for the financial system to fully support this transition to a more sustainable economy. The Commission has sought the advice of the Sustainable Finance Platform in particular in its preparation.
Extension of the taxonomy
The draft text firstly provides for an extension of the EU taxonomy on sustainable finance. As announced in its April communication (see EUROPE 12703/2), the Commission plans to adopt a complementary delegated act on climate taxonomy covering activities not yet covered by the first delegated act, such as agriculture, certain energy sectors, and certain manufacturing sectors.
This delegated act will also cover activities related to nuclear energy, subject to the outcome of the ongoing specific review process in accordance with the EU Taxonomy Regulation, the text says.
The adoption of a further delegated act on taxonomy covering the remaining four environmental objectives is also planned in the first half of 2022.
According to the text, the Commission is also expected to consider proposing legislation to support the financing of certain economic activities, mainly in the energy sector, including gas, that contribute to reducing greenhouse gas emissions in a way that promotes the transition to climate neutrality throughout the current decade. By the end of 2021, it should publish a report describing the provisions that would be needed to extend the scope of the Taxonomy Regulation.
A report on economic activities that do not have a significant impact on environmental sustainability and economic activities that significantly harm environmental sustainability is also planned, as well as a report on a social taxonomy.
More ‘green’ standards and labels
The Commission will also work on other ‘green’ standards and labels, including sustainability-link bonds.
More broadly, it should assess the “needs and merits” of a general framework on labels for financial instruments financing the transition of the economy by 2023.
Beyond financial instruments, the Commission should also consider, on the basis of a preliminary study, the possibility of creating a European ESG benchmark.
Adjustments to the Prospectus Regulation could also be considered during 2022 to create minimum requirements for comparability, transparency and harmonisation of information available for all non-equity securities that are green, social, and sustainable, the text says.
Towards inclusive and digital sustainable finance
Another objective of the Commission, according to the draft text, is to make it easier for retail investors and SMEs to access sustainable financing opportunities.
This would include asking the European Banking Authority (EBA) in 2022 to draw up an opinion on possible support tools for ‘green’ loans and mortgages, as well as increasing access to sustainable finance advisory services for SMEs.
The Commission would also, according to the text, like to exploit the possibilities offered by digital technologies for sustainable finance.
For example, it would develop a “digital roadmap for sustainable finance” by 2023 to encourage innovative solutions for the implementation of the rules by SMEs as well as encourage development and investment in low and zero emission data centres and distributed ledger technologies, including for crypto-assets.
Improving coverage of climate risks
It should also be noted that, according to the draft text, the Commission’s ambition is to strengthen protection against climatic and environmental risks by increasing insurance coverage for these risks.
To this end, it is expected to ask the European Insurance and Occupational Pensions Authority (EIOPA) to further develop its natural disaster scoreboard by mid-2022, for possible use by Member States.
A dialogue on climate resilience with the insurance industry, national authorities, and other stakeholders to identify ways to close the current climate risk protection gap could also be launched.
Encouraging global ambition
The European Commission also wants to promote a high global ambition for sustainable finance. To this end, the draft text provides for an extension to new areas of the work of the ‘International Platform on Sustainable Finance’, launched in 2019 by the Commission and seven other jurisdictions (see EUROPE 12352/18), as well as a strengthening of its governance.
In autumn 2021, the Platform is expected to publish a report on “a Common Ground Taxonomy”, which would outline the commonalities between existing taxonomies, and a report on sustainability disclosure by companies and investors.
See the draft text: https://bit.ly/3jr0DTO and its annex: https://bit.ly/3x5Xi0k (Original version in French by Marion Fontana)