European Parliament plans report on sustainable finance as Commission presses financial supervisors

Momentum from HLEG starts to permeate the European institutions

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The European Parliament plans to prepare a report on sustainable finance next year to build on the upcoming final report from the EU High-Level Expert Group on Sustainable Finance and encourage the European Commission to “do something radical” in its response, Responsible Investor understands.

The High Level Expert Group (HLEG) on Sustainable Finance was set up last year, tasked with submitting a report to the Commission setting out the “scale and dimensions” of the challenges and opportunities of sustainable finance. It will recommend a “comprehensive programme of reforms” to the EU financial policy framework. Its final report is due to be published shortly.

RI understands that, on top of this, the Parliament’s Committee on Economic and Monetary Affairs will do its own report on sustainable finance set to come out next April. It is hoped that the Committee’s report will build on what HLEG has done and pressure the Commission to do something radical.

Last year, the Committee on Economic and Monetary Affairs successfully pushed through a revision to the pension fund directive, Institutions for Occupational Retirement Provision (IORP2), which contained clear requirements for occupational pensions to consider ESG issues, partly due to UK MEPs such as Anneliese Dodds.

It is understood that a UK MEP will be the ‘rapporteur’ for the expected report.

It comes as the European Commission has launched a consultation on fiduciary duty and sustainability, responding to a recommendation from HLEG in its interim report this summer.

People close to the matter believe that this could result in legislation on the issue from the European Commission next year.

HLEG member Steve Waygood, Chief Responsible Investment Officer at Aviva Investors, has called for a wider ranging directive on ESG. In a statement quoted by the PRI, he said: “We recommend an Omnibus Directive setting out how all institutional investment intermediaries have duties to consider ESG issues throughout the work they do – and to seek informed consent from their clients to the strategy that they adopt in this area.“The news comes after the Commission made ambitious recommendations on ESG to the European Supervisory Authorities (ESAs) this summer, saying they “should make an active contribution” to a financial system that meets “critical sustainability challenges”. The ESAs are the three regulatory bodies: the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA), and the European Insurance and Occupational Pensions Authority (EIOPA).

Between them, they oversee banks, credit ratings agencies, insurance and pensions – although there are also member state supervisory bodies. In a communication issued by the Commission in September, which outlines a broader package of proposals to reform the ESAs, it says that financial services and the Capital Markets Union “will be increasingly driven by two major developments: sustainable finance and technological innovation”.

“Both have the potential to transform financial services and our system of financial supervision should be equipped for them”, it added. In this context, the Commission says there must be “the right regulatory and supervisory framework to mobilise and orient private capital flows towards sustainable investments”.

It also proposes that “the ESAs should play an important role in identifying and reporting risks that environmental, social and governance factors pose to financial stability, and in rendering financial markets activity more consistent with sustainability objectives”.

“The ESAs should provide guidance on how sustainability considerations can be effectively embodied in relevant EU financial legislation, and promote coherent implementation of these provisions upon adoption”. As a result, the Commission proposes reforms to regulations that govern the mandate of the ESAs, to include instructions to “take account of technological innovation, innovative and sustainable business models, and the integration of environmental, social and governance related factors”.

With reporting by Sophie Robinson-Tillett