The European Commission wants to move quickly to introduce an Action Plan based on its interpretation of the final recommendations of HLEG (the EU High Level Expert Group) because of risks that the timeline for adoption could be thwarted by the political calendar of the European Union.
Olivier Guersent, Director General of the European Commission’s DG (Directorate-General) for Financial Stability, Financial Services and Capital Markets Union, told the Novethic conference in Paris yesterday (December 13) that the European Parliament will start election campaigning from March 2019 and would effectively stop adopting policy at that moment. He said that this meant the timeline was tight – just one year – for the Commission’s plans to introduce its Action Plan based on HLEG.
HLEG is expected to present its final report in the third week of January. It will prompt official responses from both the European Commission and the European Parliament. The former will launch an Action Plan in Brussels on March 22, to outline how it will take the recommendations from HLEG forward. Ahead of that, the Parliament will publish its own report, stating its position on the findings. The Commission will then be tasked with creating legislation around sustainable finance, which can ultimately be vetoed by Parliament if it is not aligned with its stated position.
Guersent said some HLEG recommendations were already being taken on board by the Commission.Speaking in Paris earlier this week at the One Planet summit, Valdis Dombrovskis, one of the EU Commissioners and Vice-President for Financial Services, said the Commission aimed to integrate sustainability into institutional investment mandates. The Commission has also launched a consultation on fiduciary duty and sustainability, responding to a recommendation from HLEG in its interim report this summer: Link to RI article
But Guersent said progress on the HLEG-based Action Plan would slow because of politics: “Now comes the difficult time of getting agreement amongst member states and balancing national interests in the European Parliament.”
Guersent holds a key civil service implementation position within the European Commission, notably for its Capital Markets Union (CMU) Action Plan (also known as the Juncker Plan), where the drive for sustainable finance sits. The CMU is the Commission’s plan to boost jobs, growth and investment across the EU, by tackling investment shortages in long-term finance and increasing and diversifying funding sources for European companies.
Guersent told the conference that the Commission’s investigation of short-term versus long-term support for the economy via financial markets had not found a shortage of money but rather a lack of time horizon: “We have more savings than ever, but strangely, most of it is invested on a short-term basis. We need long-term
financing, but, of course, not all long-term financing is sustainable. Our job is to encourage the right balance.”
He added: “The CMU is about growth, jobs, sustainability, climate, the circular economy, protecting biodiversity and financial stability, and competitivity: we need to demonstrate that those that are involved in creating the new standards can make the most profit. Europe needs to be smart in translating its virtues into business opportunities.”
Guersent said the Commission was working on three main drivers for the sustainable finance Action Plan.
The first is that the European Supervisory Authorities (ESAs) had been instructed to “make an active contribution” to a financial system that meets “critical sustainability challenges”.The ESAs are the three regulatory bodies: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA).
Between them, they oversee banks, credit ratings agencies, insurance and pensions – although there are also member state supervisory bodies.
The second pillar of the Commission’s mission he said was a “mainstreaming” of investment obligations and ESG across the whole investment spectrum.
The third, he said, was a clear taxonomy to avoid green-washing in sustainable finance: “If we push more investment and ESG issues, we have to ensure the credibility and rigour of what is being proposed. There is a need for European standards that are firm, but flexible enough for adaptation.”