European financial institutions call for social investment framework

A group of European financial institutions and industry associations have called on the European Commission to put a social investment framework on its agenda. 

The potential for a social taxonomy to establish a comprehensible and shared way of defining what makes a socially sustainable activity or company was explored by the first iteration of the EU Platform on Sustainable Finance.  

This work culminated in February 2022 when the platform launched a report on what the taxonomy could look like. However, plans to extend the EU taxonomy to cover social objectives were later shelved.  

Despite this, in July Responsible Investor revealed that multiple groups of investors and other stakeholders were pushing ahead and wanted to build on the abandoned efforts.

Thursday’s letter marks the first official output of one of these groups, which has 12 members including Arbeitskreis Kirchlicher Investoren, Triodos Bank, the European Association of Public Banks, the VOB die öffentlichen Banken, Bank für Kirche und Caritas eG, and CSR Europe. 

In the letter, the group claims that the EU sustainable finance framework “fails to address the social dimension of sustainability”.

“As it is, the EU SF framework focuses on avoiding negative social impacts without giving any guidance on how sustainable investments could positively contribute to social goals and thus among other things to ensure a fair and just transition towards climate neutrality,” the letter says.   

It also says the various implementation challenges around the EU taxonomy – which was subject to intense debate regarding whether nuclear and gas-fired power should be covered by it – should not be seen as a reason for abandoning the effort to offer a framework for socially sustainable investments decisions.

“Rather, they should be seen as an opportunity to learn and craft a more suitable framework that addresses the needs of investors and the financial sector,” the letter reads.

Favouring ‘framework’

The push for a social framework comes after Antje Schneeweiß, managing director at church investment group Arbeitskreis Kirchlicher Investoren, told RI in July that the group had “abandoned” the term social taxonomy and substituted it for framework. 

Schneeweiß, who is also the former rapporteur for the EU platform’s sub-group focused on extending the EU taxonomy to social objectives, said: “We understand that, when you mention the word taxonomy or social taxonomy in some circles like DG FISMA, the door isn’t just closed, it’s locked.” 

She said that a social investment framework could take the form of a standalone framework or be incorporated into existing regulations, such as the Sustainable Finance Disclosure Regulation. 

In order to smooth the implementation of a social investment framework, the group suggests it should be built on already existing and upcoming EU legal frameworks, “while avoiding the shortfalls of the EU taxonomy”. 

For example, according to the group the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) will define companies’ duties to respect human rights, while the Corporate Sustainable Reporting Directive” (CSRD) will provide the necessary data. 

Tommy Piemonte, head of sustainable investment research at Germany’s Bank für Kirche und Caritas, explained to RI that the push for a social framework is not about being able to report “something according to some key figure”.

“Rather, we are interested in the deeper significance behind such a social taxonomy – to direct money to where it is necessary for the promotion of sustainable development. But without a social taxonomy, there is a risk of an emerging imbalance in the supply or conditions of financing between the environmental and the social.”

He said that “money could be diverted” by investors and banks away from social activities “and flow more into the environmental sector” so that financial institutions can report alignment with the existing environmental taxonomy.

Echoing this, Carlijn Kamp, team lead advocacy and impact at Triodos Bank, told RI that, while the steering of investments towards environmental objectives has been guiding EU-legislation on sustainable finance, “Europe just as much needs a framework to guide investments towards, among others, social housing, healthcare, education, access to financial services and to ensure human rights in value chains”.

As a next step, the group will be floating the idea of a social investment framework, discuss it with different types of market participants, and continue to push the Commission to act. 

Earlier in March, the German government’s expert advisory committee on sustainable finance – which Schneeweiß is a member of – also called on the Commission to develop a social taxonomy. However, RI understands the Commission is yet to respond to the committee.