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The EU High Level Group on Sustainable Finance (HLEG) has distilled to five areas the likely final recommendations it will make it to European policymakers and EU bodies following its brief to promote a financial system that supports sustainable investing, particularly in relation climate change.
In July, HLEG unveiled eight preliminary recommendations. it wanted to take forward.
The reduction to five appears to row back from regulatory changes HLEG had indicated it hoped to influence. These included proposals for a sustainability test in EU financial legislation, a proposed review of European Supervisory Agency (ESA) operations to include clarification and enhancement on assessing ESG-related risks in the context of long-term financial stability, and the creation of accounting standards for energy efficiency.
Speaking at the OECD Forum 2017 for its Centre on Green Finance and Investment in Paris this week, Christian Thimann, Chair of HLEG, said the honing down to five areas reflected where it believes it can drive change in its final report to be produced by the end of the year and handed to the EU in January. HLEG has been working closely with policy makers who have been sitting in as observers during its meetings.
Thimann said the five areas are:
- Taxonomy. He said there was a need for clear language regarding what is being talked about on sustainable finance.
- Green bond standards and labels. He said the EU believes standards will further develop the market.
- Fiduciary duty/investor duty. Thimann said there was a need to outline signals within investment that can orientate it towards the long-term, including within the governance of financial institutions.* Infrastructure: a key topic, he noted, on the agenda of the G20 and within the EMU’s Capital Markets Union (CMU) project (AKA, the Juncker Plan), but suffering from an insufficient pipeline of deals, despite the clear availability of capital. He said this was likely to involve the creation of a body called Infrastructure Europe, akin to existing organisations like Infrastructure UK and Infrastructure Canada. He said that, AXA, for example, would love to increase its exposure to infrastructure in both equity and debt positions.
- The fifth point, Thimann said, would be to ‘suggest’ to supervisory bodies that they engage more strongly in sustainability and monitor the risks: “We want to take sustainable finance upstream,” he said.
Thimann said there were other difficult areas in sustainable finance such as how to get the actors in the financial system – brokers, asset managers and ratings agencies – to think long-term, but that this needed more work in a world where financial trading was now down to milliseconds.
He said the European Commission was already looking to implement the HLEG work as a result of a review of CMU that started on June 8. He said EU supervisors were looking at sustainability risks as part of the February CMU roadmap which will come out just after the final HLEG input.
Thimann said he had recently spoken at the European Parliament and the Economic and Financial Committee of the European Council, which were very positive about HLEG’s work.