One year ago, Commission president Ursula von der Leyen presented the European Green Deal.
“This is Europe’s ‘man on the moon’ moment’” and the European growth strategy for the next decades, she said.
But transforming the European economy to meet the CO2 reduction targets and mitigate global warming will not be easy or cheap: it will require an additional investment of €350 billion annually, according to the Commission.
This massive effort cannot be carried out only with taxpayers money. For that reason, the Commission launched a sustainable finance initiative in 2018 to guide private investments towards the green recovery.
As the EU is in the process of increasing its ambition in CO2 emissions reduction to 55% by 2030, the Commission will present in early 2021 an “ambitious and comprehensive” renewed sustainable finance strategy, the Commissioner for Financial Services, Mairead McGuinness, announced in a speech in November.
The new strategy will build on the action plan launched two years ago and will explore new ways to include sustainability principles in finance and corporate sectors.
“We need a complete rethink. Sustainable finance needs to become mainstream to have a transformative impact on society and on the planet, while also generating strong returns,” McGuinness wrote in her first op-ed published by EURACTIV in November.
The priorities of the new strategy will be to strengthen the foundations for sustainable investment; to increase the opportunities for citizens and the private sector to support sustainability targets; and to integrate climate and environmental risks into the financial system.
The tools to progress on these three priorities will include the non-financial reporting directive to enhance sustainability disclosures by corporates, and the development of a voluntary EU Green Bond Standard, with a legislative proposal expected in the first half of next year.
The Commission is also implementing the EU taxonomy regulation, which helps to distinguish what investments are truly sustainable, and the climate benchmark regulation.
All these instruments will increase the transparency and the integrity of the green finance and will help to avoid the so-called “greenwashing” (investments that falsely claim to be sustainable).
The planned review of Solvency II rules, the EU regulation for the insurance sector, would also offer an opportunity to reward institutional investors’ support to the transition toward a more sustainable economy. One of the options could be demanding lower capital charges for sustainable investments.
Insurers, however, do not support these “non-risk-based reductions” in capital requirements as incentives to address climate change, according to Insurance Europe, an industry group.
‘Finance Watch’, a civil society association, instead proposed to penalise polluting activities by increasing capital charges for insurance companies’ investments in activities detrimental to a climate-neutral European economy.
In addition to the new sustainable finance agenda, the Commission is also reviewing other pieces of legislation that could spur green investment.
As part of the Stability and Growth Pact revision, the EU executive is considering including a “golden rule” that would favour public spending in sustainable projects under the deficit and debt thresholds.
The Commission also started a review of its state aid rules last year to see whether they are aligned with the ‘green’ priority, which could open the gates to public support for sustainable projects.
Some other attempts, however, have failed to gain enough traction, such as the possibility of lowering the capital banks must hold for loans given to sustainable projects.
European Banking Authority chairman, José Manuel Campa, said that “we’re not going to get to a green economy if in the process we end up encouraging banks to be insolvent, and get into another financial crisis.”
By Jorge Valero
December 16, 2020