France’s Article 173 should be replicated at EU level, say campaign groups

The new French energy transition law that requires investors to disclose their contribution towards meeting climate goals should be replicated across the European Union, according to a group of responsible investment campaign groups.

Article 173 of the new law is a major comply-or-explain green finance mechanism that requires investors to report on how they integrate ESG into their investment processes, outline the greenhouse gas (GHG) emissions of their investments and contribute to the financing of a low carbon economy.

Now a group comprising ShareAction, the 2° Investing Initiative, Client Earth, Carbon Tracker, Eurosif, the WWF and others want it to be a template for the entire EU.

“The Paris Agreement,” they say in a new plan for sustainable finance in the EU, “requires all public and private financial flows to be consistent with a pathway towards low greenhouse gas emissions and climate-resilient development, and in doing so actively drive the transition to a low carbon economy.”

They argue that to achieve this, the European Commission, the EU’s executive arm, should ensure that there is a “clear understanding” of the impact of financial services activities on the climate — including measuring the alignment of financial institutions’ activities with EU climate policy objectives.

“There is a precedent for such measures in national legislation,” they say, referring to Article 173.

“This regulation should be replicated at EU level, with EU financial institutions required to measure how their activities perform relative to a benchmark that is consistent with global climate objectives,” the report says.At an aggregated level this information, it is claimed, would enable regulators and policymakers to develop a better understanding of the financial system’s aggregate impact on climate change and feed into new policies to help manage those impacts.

“There is a precedent for such measures in national legislation”

The report also calls for the Commission to support the “rapid development” of “robust, fully developed and widely accepted” industry standards for green bonds.

It also calls for a debate about the role of fiscal policy in promoting the green bond market. Asked for further detail about tax and green bonds, report partner E3G told RI: “On tax, the short answer is we don’t know what the ideal fiscal policy looks like. We do believe fiscal incentives are needed to grow the market at the speed required to make a material difference so we are asking for a conversation to start between Member States and the Commission.”

The document also suggests legislation to ensure that asset owners consult beneficiaries on their preference for having their money invested sustainably.

The 39-page report also calls for “mandatory requirements” for all asset owners to disclose their responsible investment policy and report on its implementation.

“This should result in the asset owners’ service providers (asset managers, investment consultants etc.) providing the information and advice their clients need, for example so-called non-financial performance factors, engagement activities (including voting decisions) and their overall impact.” And the EU authorities should “end the debate” on ESG risks in the context of fiduciary duty “as soon as possible”.

ShareAction is hosting a debate on November 11 on the future of green finance in the UK and Europe post-Brexit.