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EU set to investigate role of bond market to finance resource-efficient investments

Study will be part of wider ‘Capital Markets Union’ plan

The European Commission, the executive arm of the European Union, is to investigate whether the bond market can finance resource-efficient investments.

It is preparing to study the market potential as part of the wider Capital Markets Union plan devised by European Commission President Jean-Claude Juncker.

Green bonds have been on the agenda for some time at the EU. In February last year, the Commission asked whether it should have a role in developing “standardised, transparent and accountable” ESG investment such as green bonds as part of a consultation on the CMU.

“The CMU Action Plan recognises that Europe requires significant new long term and sustainable investment to maintain and extend its competitiveness and shift to a low-carbon and resource-efficient economy,” the Commission now says in the first update of progress on the plan. In support of this, the Commission last month said how it would implement the Paris Agreement. And a consultation on how institutional investors, asset managers and other service providers in the investment chain factor in ESG (environmental, social and governance) information and performance of companies or assets into investment decisions closed on March 31.The ambitious CMU plan, published in September last year, aims to set out the “building blocks” of an integrated EU capital market by 2019.

The document also reveals that there will be a legislative proposal to revise the stillborn European Social Entrepreneurship Funds (EuSEF) social fund regime after stinging market criticism and minimal take-up; the European Venture Capital Funds (EuVECA) system will also be part of this rethink.

A key element of the CMU plan is to restart the market for what is being termed ‘Simple, Transparent and Standardised’ securitisations to support bank financing of the wider economy and open up investment opportunities “for a wider set of non-bank investors”. A vote on this is now expected on this proposal in the European Parliament in November.

New rules to enable greater insurance sector exposure to European long-term investment funds (ELTIFs) and infrastructure projects entered into force on April 2, the Commission says. It reduced the Solvency II calibration of capital charges and makes it cheaper and more attractive to invest in infrastructure and long-term projects.