EU Policy Update: March

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

There are worries that the current coronavirus pandemic and the consequent economic downturn will plunge sustainable finance to the bottom of the priority list for Europe’s regulators and policymakers, just when it seemed to have found itself in the top spot. Time will tell if this is the case, but for now things seem to be steaming ahead. In the next couple of days, the European Commission will launch its public consultation on the next iteration of its Action Plan on Sustainable Finance, known as the Renewed Strategy, asking the market for its thoughts on how to further foster ESG and long-termism in finance and investment. The strategy itself will be launched at the end of summer.

Earlier this month, the Technical Expert Group on Sustainable Finance (TEG) presented its final reports to the Commission on the Green Taxonomy and Green Bond Standard. Altogether, there were more than 700 pages of information, including new details on the need to consider local context for climate projects, the first batch of adaptation activities and a lot more on how to incorporate the Do No Significant Harm principle. It also advised the Commission to broaden the scope of its taxonomy over time to include socially-beneficial business activities, not just climate-aligned ones, and to begin defining those that undermine the Paris Agreement (i.e. the “brown taxonomy”; although, to avoid any racial connotations, the TEG suggests the “red taxonomy”, which it says will more obviously denote hazard).

RI is holding a webinar tomorrow devoted to discussing the investment implications of the taxonomy, now that there is more clarity on both the legal requirements and the technical detail. Speakers include TEG member and PGGM’s responsible investment advisor, Brenda Kramer, ESG investment veteran Seb Beloe from Wheb Asset Management, and Novethics’ Nicolas Redon, who has been studying the different ways in which companies have been using the taxonomy so far. 

A few weeks ago, RI reported that the Principles for Responsible Investment has set up a working group of some 50 asset managers and owners globally, to discuss how to use the green taxonomy. The group will apply the framework to parts of their in-house portfolios to see what happens, and they will share feedback with each other and the wider market over time. Some corporates are already disclosing the level of revenues generated from taxonomy-compliant business activities, although experts point out that the outcome so far is far from standardised. 

In this context, it is worth noting that at the end of 2019, the Principles for Responsible Banking teamed up with the European Banking Federation and 25 banks to form its own taxonomy working group, which plans to publish a feasibility study of how the taxonomy might apply to banking products later this year.

The working group for the EU Ecolabel for retail products met again last week, to discuss its recommendations on creating a “green” label for retail funds. Their biggest challenge is finding the middle ground between creating a label that has integrity and discourages greenwashing, and one that is lenient enough to allow the asset class to grow quickly. Unsurprisingly, plenty of lobbying has been taking place by asset managers wanting to water the plans down. In the latest meeting, the group discussed the second draft of its proposals, which includes an overhaul to the exclusion criteria and more detail on the role of sovereign bonds. Stakeholders are invited to comment until the end of this week, but, unusually, they must register in order to do so, by contacting

Next month, the European Securities and Markets Authority will launch a public consultation on behalf of itself, the European Banking Authority and the European Insurance and Occupational Pensions Authority, asking for feedback on their suggestions for fleshing out the Disclosures Regulation. The regulation, which was passed last year, and will come into force next year, requires financial institutions, investors and large firms to publish a report on how they integrate sustainability risks into their businesses and investment considerations, and how they meet sustainability goals. The technical advice will help with the drafting of the full regulation, and will cover aspects such as how the information should be presented. The consultation is slated for the week of April 14th, an ESMA spokesperson told RI.