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EU ponders role in ESG/green bond standardization in Capital Markets Union plan

Draft Green Paper issued for consultation by European Commission

The European Commission is asking whether it should have a role in developing “standardised, transparent and accountable” ESG investment such as green bonds as part of a wider consultation on its ‘Capital Markets Union’ plans.

The commission published its Green Paper “Building a Capital Markets Union” today (February 18), formally introducing a three-month consultation on the central plank of new European Commissioner Jean Claude Juncker’s plan to kickstart the moribund European economy.

Included in the 28-page document are green bonds, and ESG more generally.
“Is any action by the EU needed to facilitate the development of standardised, transparent and accountable ESG (Environment, Social and Governance) investment, including green bonds, other than supporting the development of guidelines by the market?” is one question the Commission is putting out to consultation.

Long-termism is also addressed; the Commission says the recently finalised European Long-Term Investment Funds (ELTIFs) regime “should have particular appeal” to insurance companies and pension funds seeking steady income streams or long-term capital growth. But it would welcome views of how the appeal of ELTIFs could be broadened – “including the possible extension to ELTIFs of advantages currently available for national regimes”.“We want to hear from parliamentarians, member states, those who work in capital markets and from all groups concerned about jobs, growth and the interests of European citizens,” the Commission says. The feedback will go towards an action plan for a “fully functioning” Capital Markets Union by 2019.

Alongside ELTIFs, the proposal centres on securitisation, credit information on SMEs, private placement and the review of the Prospectus Directive on company information.

Also tackled in the document are the EuSEF (European Social Entrepreneurship Funds) and the allied EuVECA venture capital frameworks, which are seen as too narrow by many observers. The Commission has taken this on board: “Widening the range of market participants could potentially increase the number of EuVECA and EuSEFs available.”

The National Association of Pension Funds, the UK trade body, welcomed the commitment to long-term investment. “But it is important to remember,” said CEO Joanne Segars, “that any reforms to the functioning of European capital markets should be seen through the lens of the providers of capital, in particular pension funds.

“This will help policy-makers to avoid unintended consequences where intermediaries benefit at the expense of funds and ultimately future pensioners.” Link