Hugh Wheelan: Climate Finance Day showed Paris is leading on aligning policy, business and finance with the EU’s grand ESG plans

The recent Paris Climate Finance Day was a good chance to catch up with where ESG policy developments are going at the EU level, and to see where France – one of the key European actors in the European Commission’s sustainability drive – is at in its domestic support of the EU agenda. 

Climate Finance Day is a legacy event of the Paris Agreement.

Addressing the conference, Mairead McGuinness, the Irish politician appointed in September as the new Commissioner for Financial Stability, Financial Services and Capital Markets Union, said the EU would now build on its green taxonomy with similar initiatives on the social and governance side.

She told the event: “The COVID crisis reminds us that we cannot leave behind the social, the “S” of ESG. We want to make the social element more important in our strategy. The public and private sector experts in the Platform on Sustainable Finance are assessing how a social taxonomy could work. The Commission will also put more emphasis on the “G” – governance, via a new initiative in 2021 on sustainable corporate governance.”

Pascal Canfin, the French politician (member of French President Emmanuel Macron’s La République en Marche! party) and Member of the European Parliament, with particular input into environmental and governance issues, noted that the EU’s €650bn Covid rescue package was in part, clearly aligned with the Paris Agreement; at least 37% of the funds are allocated to finance investments in the fight against climate change. 

Backing this will be a lot of green bonds, and he said the EU would be the world’s biggest issuer by the end of the year. However, he said the EU was still negotiating how to make the remaining 63% of Covid-19 economic support fit the ‘do no environmental harm’ principle enshrined in the EU’s green taxonomy.

Canfin said he was also focusing his attention on a business-policy network he set up earlier this year, the ‘Alliance pour une relance verte’ (Alliance for a green recovery), to bring together progressive supporters from policy, business and technology.

So how is France doing in backing up the EU’s policy drive? 

The answer is with rigour and determination.

Bruno Lemaire, Minister of the Economy and Finance, told the conference that as a country France was already a leader in green bonds with a total of €27bn issued. But he said the French government would up the ante next year by issuing a second round of green bonds to add to the €7bn in green treasuries it issued back in 2017. 

In addition, he said the government had now introduced one of the world’s first national green budgets. The 2021 French state budget will be analysed for its environmental impact, and France says other countries around the world are asking for advice on how to do this.

A third of France’s annual government budget is being directed towards projects with environmental credentials.

Lemaire said that the country’s export finance guarantees were also being calibrated for green. From January 1 2021, France will stop guaranteeing finance for heavy oil and non conventional hydrocarbons. From 2025, it will no longer provide export financing guarantees for new oil projects; and from 2035 the same will apply to gas, although this may be brought forward.

Lemaire said: “We want to end financing elsewhere what we won’t do here.”

Conversely, he said, France will add a ‘climate bonus’ from January 2021 to increase finance for export projects that are Paris aligned.

France has already said that by 2030 French institutions will no longer finance coal in EU and OECD countries, and by 2040 in the rest of the world.

And importantly, Paris is keeping clear tabs on these commitments and their application in the business and finance sectors.

This week, the French Prudential Supervision and Resolution Authority (ACPR) and the Autorité des Marchés Financiers (AMF), the financial regulator, published their first report on the monitoring and evaluation of financial institutions’ coal policies. It confirms a positive impetus, but identifies areas of improvement.

Also announced on Climate Finance Day, was a new French Sustainable Finance Observatory, believed to be the first of its kind in the world, and one which could be a model for monitoring commitments to the EU Action Plan on Sustainable Finance. 

The observatory, led by Finance for Tomorrow, the French group for promoting sustainable finance, is aiming for transparency, monitoring and evaluation of the financial sector’s transition.

It will list and update regularly the public commitments of 355 financial firms that have signed up, and importantly compare their investment alignment to Paris and impact on the real economy. 

Non-signatories will, hopefully, be conspicuous by their absence.

A scientific and expert committee of 12 experts from civil society and academia, chaired by Pierre-Louis Lions, winner of the 1994 Fields Medal and professor at the Collège de France, will regularly assess the relevance and quality of the Observatory's methods and data. Finance For Tomorrow says it will share feedback and lessons learned from the project with other financial centres, particularly through the Financial Centres for Sustainability project, and methodologies will be open-source.

Looping back to how the EU and France are working closely on all of this is the EU-funded Finance ClimAct project, coordinated by France’s Agency for Ecological Transition (ADEME). This is putting in place the connections that can make this high-level policy work coherent. A steering committee of the Finance ClimAct project ensures that France’s strategic positioning on ESG is clear and that deadlines are met.  

It is overseen by ADEME and includes France’s General Commission on Sustainable Development (CGDD), the Financial Market Authority (AMF), French Prudential Supervision and Resolution Authority (ACPR), the Institute for Climate Economics (I4CE), 2° Investing Initiative, Finance for Tomorrow and Greenflex, the green business development company. 

This is what joined-up policy-business-finance thinking looks like. Félicitations France!