High praise and words of warning over HLEG report

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The investment community has responded with mixed views on the final recommendations of Europe’s High Level Expert Group on Sustainable Finance.

Industry groups, companies and investors were largely supportive of today’s report, hailed by HLEG member and Director of Environmental Consulting firm E3G Ingrid Holmes as “setting the terms of the debate on building a sustainable financial system in Europe for years to come”, although there has been some criticism levelled at the findings, too.

For the key recommendations, see RI’s story from yesterday.

“Stay clear of any prescriptive one-size-fits-all approach” – PensionsEurope CEO, Matti Leppälä

Stephanie Pfiefer, CEO of the Institutional Investor Group on Climate Change (IIGCC), urged the European Commission to take full account of the report as it finalises its own action plan on sustainable finance, welcoming HLEG’s “steps to support the clarification of investor duties, to establish an EU sustainability taxonomy, and to confront short-termism in financial markets”. The Principles for Responsible Investment is calling for its signatories to publicly endorse the report, and work with the Commission on the adoption of the recommendations.

Matti Leppälä, CEO of trade body PensionsEurope, said that the report “sets out a vision for a more sustainable financial system that aligns capital with the broader values of society”, and one which “could widen the choice of sustainable investments and create a common language for the markets through an ESG classification”. But he also cautioned the EU to “stay clear of any prescriptive one-size-fits-all approach”.

Leppälä was also resistant to changes to investor duties within IORP II, via a proposed Omnibus directive. “The new IORP II Directive is already very advanced and includes many new provisions on ESG, as part of risk management and investments. It would be advisable to first see the impact of these new rules before expanding them”, he warned.Simon Lewis, Chief Executive at the Association for Financial Markets in Europe (AFME) called the report a “big step in the right direction”, supporting many of the key recommendations and cautiously backing the prospect of a ‘green supporting factor’ – a regulatory easing of banks’ capital charges for green investments. However, the European body challenged the report’s conclusions on sell-side research, disagreeing with the view that bank analysts do not consider ESG criteria when preparing research. “Many AFME members have ESG– or climate change-specific analyst teams with many years of experience required to assess the materiality of ESG-related risks to a sector or security”, AFME said.

Referring to HLEG’s recommendations as potentially “game-changing”, Andrea Marandino, Sustainable Finance Manager at WWF-UK, urged the European Commission to “avoid the temptation to cherry-pick parts of the report” and risk weakening its “systemic impact”. She welcomed the report’s focus on disclosure aligned with the Task Force on Climate-related Financial Disclosure (TCFD), and its reference to working with regulatory body IOSCO and other partners. Marandino said the report marked an “a great opportunity to make sustainability disclosure mainstream across financial securities and stock exchange listing requirements”. WWF– France’s CEO, Pascal Canfin, is a member of HLEG.

Insurance Europe, the European federation of insurers, praised the report’s “valuable contribution”, particularly welcoming its recommendations around the need to adjust the EU’s Solvency II regulatory framework; the development of an EU taxonomy for sustainable finance; the need to increase the supply of suitable sustainable assets; and its call for a proportionate and careful approach in encouraging disclosure of climate-related factors.

Luxembourg’s Finance Minister, Pierre Gramegna described the report as “an important milestone” , adding that “Luxembourg is committed to work with the all the important stakeholders on the implementation of the various recommendations set out by HLEG”.

HLEG’s Holmes told RI that the final report could “act as a blueprint for other jurisdictions” that also want to pursue a more sustainable financial system and redirect capital to ESG-aligned and long-term assets.