Some MEPs fear EU high level sustainable finance group “badly wrong” in some aspects

HLEG’s Thimann appears before Economic and Monetary Affairs committee

Members of the European Parliament have been critical of some of the recommendations of the EU High Level Expert Group on Sustainable Finance (HLEG) — with one senior MEP fearing that it risks going “badly wrong” in some respects.

HLEG chair Christian Thimann took part in an exchange of views with the Parliament’s Economic and Monetary Affairs committee (ECON) last week, following the release of the group’s final report at the end of January.

Finnish MEP Sirpa Pietikäinen, while hailing the HLEG’s “intelligent thinking and concrete, actionable, proposals” said she feared that on some points the EU risks being “unintentionally badly wrong”. The first example she gave was green definitions, which were “always going to be on the margin of the whole bulk of the investments that we are making, in Europe and globally”.

The notion of a classification system to help mobilise green investments is one of the central planks of the HLEG recommendations and has been taken up by the Commission, the executive arm of the European Union.

But Pietikäinen — Finland’s former Minister for the Environment – called instead for a system to meter eco-system impacts, materials consumption and social impact, which could be included in credit ratings, financial regulation and “in the longer run” IFRS [International Financial Reporting Standards].

She said there are already a lot of indicators, but the problem is “if they are not harmonised, if they are not compulsory to everybody, they are not comparable and we do not get the big stream moving fast enough”.

That view was echoed by Pervenche Berès, the veteran French MEP who chaired ECON from 2004-2009: “I must admit I’m a bit disappointed when it comes to the taxonomy.”

Clearly exasperated, she went on: “I have been engaged in this discussion for too long on voluntary or compulsory ESG criteria and now we are there again, ready to take the next step. The next step is compulsory [disclosure] and you didn’t do it. We will see what we can do about it. And we hope Molly will have it in her report.”

This was a reference to Green MEP Molly Scott Cato, who is ‘rapporteur’ for the committee’s own work on sustainability and it suggests the Parliament aims to go further than HLEG.Berès then moved onto her frustrations with ESG, or lack of it, in the ‘packaged retail and insurance-based investment products’ (PRIIPs) legislation which covers retail investment products. She noted that ESG, after a lot of work, is now incorporated in the separate IORP pension directive. “So the legal basis is already there but the Commission doesn’t want to look at it. They sent a vague consultation to the ESAs [European Supervisory Authorities, which oversee banks and other financial institutions] and the ESAs have no idea about it.

“Don’t take it for granted just because you have your report”

“And when you come with your taxonomy and all that stuff, they will say ‘well, this is over [beyond] the legal base of PRIIPS so we cannot integrate it’. In the meantime we have a legal base but we don’t use it because we are waiting for the sky.”

Any attempt to include sustainability into the mandate of the ESAs would be problematic, Berès warned. “This will not be easy, I know. Getting sustainable finance in the mandate of the ESAs will not be an easy point, so don’t take it for granted just because you have your report.”

Responding to Berès’ point about the ESAs, Thimann said: “I understand that. We ourselves have had long exchanges with the ESAs and my sense is they’re realising that the market is not neutral.

“We say ‘oh the market is the market’ — but the market does not take sufficient account of the sustainability risks going forward, so the market-based benchmarks cannot yet be perfectly aligned.”

Amid the generally positive tone of the discussion, a discordant note was struck by David Coburn of UKIP, who said the HLEG proposals weren’t commercially minded, adding: “You’re living in a fantasy world.” Thimann, a senior executive with AXA, rejected this out of hand saying “sustainable business means better business”.

The event, chaired by ECON chair Roberto Gualtieri, was in the context of the Parliament’s ‘own-initiative’ Report on Sustainable Finance being prepared by Scott Cato (see our interview with her here). This is expected to be adopted by the end of April. A recording of the meeting is available here.