Sustainable finance: Making Finance a critical element of Sustainability
Photo by: Finance Watch
As part of Sustainable Finance Action Plan, in June 2019 the European Commission by the Technical Expert Group (TEG) on sustainable finance has published three important reports including updated non-binding guidelines on corporate climate-related information reporting:
- The Taxonomy Technical Report
- The EU Green Bond Standard
- The TEG Interim Report on EU Climate Benchmarks
Guidelines and reports are part of the Commission's ongoing efforts to ensure that the financial sector – private capital – can play a critical role in transitioning to a climate-neutral economy and in funding investments at the scale required. These documents will provide companies with practical recommendations on how to better report the impact that their activities are having on the climate as well as the impact of climate change on their business.
1. The Taxonomy Technical Report is a classification system (or taxonomy) of the environmentally-sustainable economic activities that can make a real contribution to climate change. This aims to provide practical guidance for policy makers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy. Activities are screened across a wide range of sectors, including energy, transport, agriculture, manufacturing, ICT and real-estate. It has identified low-carbon activities like zero-emissions transport but also transition activities like manufacturing of iron and steel in order to compile the most comprehensive classification system for sustainable activities to date. This expert report is published as the Commission's proposal on taxonomy awaits agreement by the co-legislators.
2. EU Green Bond Standard recommends clear and comparable criteria for issuing green bonds. In particular, by linking it to taxonomy, it will determine which climate and environmentally-friendly activities should be eligible for funding via an EU green bond. The Commission expects this to boost the green bond market allowing investors to scale up sustainable and green investment
3. EU climate benchmarks and benchmarks' ESG disclosures sets out the methodology and minimum technical requirements for indices that will enable investors to orient the choice of investors who wish to adopt a climate-conscious investment strategy, and address the risk of greenwashing. The report also sets out disclosure requirements by benchmark providers in relation to environmental, social and governance (ESG) factors and their alignment with the Paris agreement. This expert report relates to the Commission's proposal on low-carbon benchmarks, which has recently been agreed by the co-legislators.
The TEG commenced its work in July 2018 and was composed of 35 members from civil society, academia, business and the finance sector. These reports are the outcomes of one year of extensive work on key aspects of the Commission's Action Plan. These reports therefore supplement the legislative proposals on taxonomy and benchmarks presented by the Commission in May 2018. They aim to further incentivise and channel private sector investment into sustainable development, by making investors more aware of what they invest in and by giving investors important tools to invest sustainably.
The EU budget is also a driver of climate mainstreaming. To implement the Paris Agreement and the commitment to the United Nations Sustainable Development Goals, the Commission proposes to raise the level of ambition for climate mainstreaming across all EU programmes, with a target of at least 25% of EU expenditure contributing to climate objectives between 2017-2021.