EU policy update: January

The latest developments in Europe’s ambitious sustainable finance policy package

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After two months of ferocious political negotiations and not a lot of sleep, January will have come as a welcome break for the EU’s sustainable finance policymakers – although, judging by the poster hanging on the office wall of the European Commission’s banking and finance division, even DG FISMA’s downtime is now devoted to sustainability. 

Things are far from dead for the Action Plan, though. On Tuesday, at a conference on the New Green Deal, The European Commission’s Executive Vice President Valdis Dombrovskis acknowledged that the high-profile ambitions of the EU on climate change came with “a hefty price tag”. “The public purse cannot foot this bill alone,” he noted, “so we have to rely also on the private sector”, namechecking equities, loans and project finance. 

As well as offering EU investment guarantees to the private sector and the European Investment Bank, the green taxonomy is one of the key tools to accelerate these flows, he said. Last week, the two parliamentary committees in charge of the green taxonomy voted the final text through, so all that’s left is for it to be approved by wider Parliament – probably at a plenary in mid-March, or early April at the latest. 

EU's financial unit invites staff to "sustainable" costume partyIn early March, the Technical Expert Group on Sustainable Finance (which had its mandate extended until September at the end of last year) will present its final report on the taxonomy, plus guidelines for the green bond standard. This will all be discussed at a conference held by the European Commission on March 12th, which you can register for here

The EU Platform on Sustainable Finance, which will replace TEG in a more permanent, formal way, can’t be launched until the taxonomy regulation has been fully signed off. If that goes ahead as expected in March, the European Commission plans to launch a recruitment process immediately, and will select members of the new platform ready for launch after the summer. 

On banking, DG FISMA will shortly award a tender for a study into how banks integrate sustainability into lending practices, what dedicated products they offer and current best practice for supervisors. Meanwhile, the European Banking Authority yesterday published a report concluding that credit institutions are still at “the early stages” of incorporating ESG and many have taken “divergent approaches” when it comes to defining sustainability. The findings were based on a survey of 39 banks, publicly available information and observations from public studies and other initiatives. 

The European Banking Federation and the Institute of International Finance has just done its own survey of the state of play for banking and sustainability, and – among other things – found that more than 80% of respondents in “developed Europe” disclose information aligned with the TCFD. 

This month, RI reported that the current proposals for an EU-backed ‘green’ retail investment label, known as the Ecolabel, only require 20% of assets to be green for a fund to be eligible. That’s not a final decision, though – the Commission needs to approve the rules, and there will be more discussion in the meantime, including a public consultation which has been extended until April 3. The working group that came up with the proposals, which includes BlackRock and Amundi, has pushed its next meeting back from January to March. 

The delegated acts being written to integrate sustainability considerations into MIFIDII and IDD are also expected to be finished in the Spring, ready for the Commission to present to Parliament and Council for approval. 

And then, of course, there’s the new Action Plan on Sustainable Finance (sometimes called the ‘renewed strategy’ or the ‘sustainable finance strategy’), which will commit the EU to a second big round of policymaking on the topic. In February or March, the Commission plans to launch a major, three-month consultation to gather feedback on how it should move the agenda forward, and how it can align with all the new ambitions laid out in Europe’s new Green Deal. 

One thing that will definitely feature in the new strategy is a revision of the Non-Financial Reporting Directive to require large companies to raise disclosure on ESG activities and provide robust information on sustainability-related risks and opportunities. In Dombrovskis' speech on Tuesday, he announced that he would soon invite the European Financial Reporting Advisory Group to start preparing to develop new standards. 

Also on disclosure, the European Supervisory Authorities are launching a joint consultation on their proposals for technical standards on investor disclosure, which is currently being turned into regulation. According to the European Securities Markets Authority, which is leading the consultation, it will launch towards the end of March and be open to all stakeholders. 

There are hopes that the new Action Plan may include more focus on social issues, too. RI understands that DG Just, the unit within the Commission that deals with justice and consumers, has commissioned a report by the British Institute for International and Comparative Law on due diligence in supply chains. The work, which looks at the legal duty of care for companies in regard to human rights and the environment, is part of Action 10 in the existing Action Plan – sustainable governance – and the report is expected to be published soon. 

Additional reporting by Khalid Azizuddin