The EU should respond to the pushback to its sustainable finance plan by better tackling the large part of the market that has the potential to shift to green, while also doubling down on the Just Transition, Paul Tang has told Responsible Investor.
The Dutch MEP of the Progressive Alliance of Socialists and Democrats in the European Parliament, who is also the rapporteur for the recently adopted EU green bond standard, believes it is time for a stock take of sustainable finance progress in the bloc.
While huge progress has been made, he says, “it’s not like we’ve rolled out a blueprint”. He adds that the next few years need to focus on improving existing regulations and aligning them further.
Crucially, Tang is calling on the EU to better capture transition activities and companies in its sustainable finance agenda. “It’s not about being green, but about becoming green,” he says.
Like many others, he believes that so far the focus has been too much on identifying what is green rather than on transitioning activities and companies. “It’s like we’ve lost sight of the most important thing.”
He is pleased that the EU green bond standard includes a requirement for issuers to commit to transition plans. Tang had hoped to take the transition element further and incorporate transition bonds into the standard, he tells RI, “but I didn’t get support for it – I think it was too early”.
Increasing pushback
Tang’s comments come amid increasing resistance to some of the EU’s sustainable finance agenda and an ongoing consultation on whether to completely overhaul the SFDR regime.
Reflecting on the current legislative environment and pushback against ESG and sustainable finance, he says: “We need to focus on what is needed to make the transition and with that approach I hope that we can get a majority on board after the EU parliamentary elections in June.”
Tang is keen to “make sustainable finance broader”, he adds. This could be done by expanding the taxonomy to cover assets in the so-called “amber” category proposed by a sub-group of the previous EU Platform on Sustainable Finance. The category would cover activities that fall in between the taxonomy’s do no significant harm (DNSH) threshold and the green category.
“This would also help countries that are not as far along in the transition to access sustainable funds,” says Tang. “And it’s here that most CO2 reduction can be achieved.”
Addressing Just Transition would also help to secure support for EU regulation, he believes. “It’s crucial to have more social and governance elements expanded and more spelled out,” he says.
He hopes that the Corporate Sustainability Due Diligence Directive will be adopted and form part of such efforts.
“Some conservative parties have concerns about whether a transition is possible to achieve,” he says. “I think they’ve partly adopted this as a political position and partly have some genuine concerns. We should address the genuine concerns to get the political backing we need, and focusing more on the Just Transition is the way to do that.”
Backlash risk
When asked whether this is needed to avoid a full-blown backlash similar to the one seen in the US, he says: “Yes, I would agree with that.
“We’d still have lobbying but I think it would be less, because amber is larger than the green category, so more activities would fit in.”
Tang also hopes that the SFDR review will result in the inclusion of a transition category in the updated regulation. This is the type of precision needed, he says, rather than the broad and confusing Article 8 disclosure category.
On corporate disclosures and materiality, he praises the EU’s focus on double materiality but argues that this approach can coexist with a financial materiality one. “There is no need to clash,” he says, adding he found Emmanuel Faber’s recent criticism of double materiality “unhelpful”.
Looking ahead to the next legislative session, Tang believes the building blocks are there “but we have to use them better, and address some of the legitimate concerns from some businesses and politicians”. The EU has an “amazing opportunity” to do so, he says. “But hey, I’m an optimist.”
Paul Tang will be speaking about transition finance at The decade of sustainable finance – half-time evaluation event, which he is co-organising with QED, on 14 November (Brussels, hybrid). RI’s Elza Holmstedt Pell will be moderating two of the sessions
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