On Tuesday 13 June, the European Commission presented a package of proposals designed to stimulate sustainable finance. According to the institution, the EU will need additional investment of around €700 billion each year to achieve the objectives of the ‘European Green Market’, and most of this investment will have to come from private funding.
This package continues the measures which have been adopted since 2018, which include the taxonomy, and should increase the potential for sustainable investment in the EU. The package is divided into two parts: firstly, the delegated acts relating to the taxonomy; secondly, the proposed regulation on the transparency and operation of environmental, social and governance (ESG) rating agencies.
Taxonomy. “We want to expand the scope with more sectors and economic activities”, explained Valdis Dombrovskis, European Commission Executive Vice-President responsible for an Economy that Works for People, at a press conference.
“Taxonomy is perhaps the cornerstone of the EU’s sustainable finance agenda. It is an important market transparency tool to help direct investments to those economic activities most needed for a green transition”, he continued.
These new delegated acts should therefore facilitate investment in a greater number of economic sectors and activities, which will be recognised as contributing to the EU’s climate objectives. The package also introduces the first-ever environmental taxonomy, comprising activities and associated criteria for four environmental objectives of the non-climate taxonomy regulation.
These new criteria are: - sustainable use and protection of water and marine resources; - transition to a circular economy; - pollution prevention and control; - the protection and restoration of biodiversity and ecosystems.
To complement this, the Commission has adopted targeted amendments to the EU Taxonomy Climate Delegated Act, which expand on economic activities contributing to climate change mitigation and adaptation not included so far – in particular in the manufacturing and transport sectors.
Rating agencies. The Commission has also included a proposal for a regulation on environmental, social and governance (ESG) rating agencies. ESG ratings provide an assessment about the ESG characteristics, exposures to ESG risks or impacts on the outside world of an entity, a financial instrument or a financial product. They are usually provided by specialised ESG rating providers.
“Without regulations on the means of rating companies, we end up with different agencies with different types of rating. So we need a framework to see what these different rating indices correspond to”, commented Commissioner for Financial Services Mairead McGuinness at a press conference.
The text includes several provisions to increase transparency and “limit the risks of conflicts of interest for the agencies that provide these ratings in terms of corporate social and environmental responsibility (CSR)”, she added. These issues were among the main concerns raised by the impact study carried out by the European Commission.
More generally, the Commission is also counting on this text to enable “rated entities to take informed decisions on the management of ESG risks and the impact of their activities”, the draft regulation states, in order to restore the “undermined confidence” in this type of organisation.
Part of the text is also devoted to the issue of supervision. On this point, the European Commission is proposing that ESG rating agencies offering services to investors and companies in the EU should be approved and supervised by the European Securities and Markets Authority (ESMA).
These measures complement the future European Sustainability Reporting Standards (ESRS) under the CSRD, Corporate Sustainability Reporting Directive, which are currently out for public consultation (see other news).
Further information: https://aeur.eu/f/7gy (Original version in French by Thomas Mangin & Anne Damiani)