EU Committee of Economic and Monetary Affairs passes green finance report

Recommendations include green bond standards, Green Finance Mark and banking stress tests for climate

The European Parliament’s Committee on Economic and Monetary Affairs (ECON) has voted through, by a large majority, its Report on Sustainable Finance – which includes calls for green bonds to be verified and supervised by public authorities, stronger ESG disclosure requirements and fiduciary duty updates. 
The report, developed by the ECON committee on sustainable finance, is a non-legislative initiative intended to provide a position on sustainable finance. It follows the European Commission’s Action Plan on Financing Sustainable Growth in the EU, released in March, but observers say the so-called ‘own initiative’ report from the goes further than the Commission, and is expected to “lend a voice” to its work. 
The next step is for the document to be scrutinised by the whole European Parliament in May.
UK Green MEP Molly Scott Cato, who acted as rapporteur for the report, said: “It was a rare pleasure to lead a process where there was so much agreement across the political groups in Parliament.”
The ECON Committee is made of 61 MEPS. Of the 54 who voted on whether the report should be approved, 42 voted for, 9 voted against and three abstained. RI understands that among those voting against were MEPs from the Alliance of Liberals and Democrats for Europe.
The report, due to be published this week, calls for the introduction of a European ‘carbon stress test’ for banks and other financial organisations, to determine risks such as stranded assets. It also calls on the Commission to establish a Green Finance Mark by 2019 – described in documents as being “granted to investment, equity and pension products that have already achieved the highest standards on the sustainability taxonomy to guide the investment decision of those who prioritise sustainability above all other factors”.
These “should include minimum standards of ESG risks and factors aligned with the Paris Agreement and the do-noharm principle in accordance with ESG risk analysis, and activities that are demonstrably achieving a ‘Positive Impact’ as defined by the UNEP FI”, the documents continue.The ECON report also endorses the work of the Taskforce on Climate-related Financial Disclosures.
On fiduciary duty, the report mirrors the Commission’s Action Plan, saying there should be a mandatory ‘two-way’ integration process, in which all actors across the investment chain are required to integrate financially material ESG factors into their decisions. It adds that active and accountable stewardship form an integral part of the legal duties of investors and should be made public. It also says investors should be required to ask clients and beneficiaries on their environmental and social preferences. 
The report calls for European Supervisory Authorities to develop guidelines for ESG model mandates.
It says green bonds should be verified and supervised by public authorities, and that the standards for an ‘EU green bond’ should include a ban on breaching core social and human rights or including sectors that have a negative impact on the environment.
Other elements of note in the report include calls for all credit-rating agencies operating in the EU to integrate ESG, and for the European Central Bank to integrate the Paris Agreement into its purchasing programmes.
Scott Cato said: “In the wake of the Paris Agreement there was almost universal agreement about the need to identify and eliminate carbon-related ‘stranded assets’ from investment portfolios and for a rapid transition to investments that address wider ecological crisis as well as pushing for the highest social and governance standards.
“The challenge now is to agree what should count as ‘sustainable’ and we hope to contribute positively to the process of developing a taxonomy, currently underway at the Commission. In particular, we want to ensure it is able to be flexible and dynamic in order to respond to a rapidly changing background and the urgent changes we need to make.”
Molly Scott Cato will be speaking at the RI Europe 2018 Conference on June 5/6 in London.