Commentary: The EU’s Renewed Sustainable Finance Strategy largely fails to put words into action
"The EU’s Renewed Sustainable Finance Strategy largely fails to put words into action", 6 July 2021
The European Commission has released three documents today that aim to bring the EU financial system more in line with the EU Green Deal.While some steps forward are taken, each document has weaknesses. The Commission published:
- A Renewed Sustainable Finance Strategy, which is the outcome of a mid-term review of the EU’s 2018 sustainable finance Action Plan. It is expected to support the EU Green Deal and the climate agenda.
- A legislative proposal for an EU Green Bond Standard. The EU Green Bond Standard aims to provide a common EU framework and set the minimum standards for the European green bond market.
- Rules setting out what businesses will be required to disclose exactly in terms of their alignment with the EU sustainable taxonomy, known as the Article 8 Delegated Act of the taxonomy regulation.
Renewed Sustainable Finance Strategy
WWF welcomes several positive steps such as supervision for banks and insurers, mandatory climate scenario testing, reinforcing science-based target setting, plans for minimum requirements for ESG products and revising the Prospectus Regulation.
However, it is unclear whether capital requirements for banks and insurers will be modified to capture high-carbon related financial risks. Urging companies to set sustainability targets should be included in the forthcoming Sustainable Corporate Governance file but is not; and there is no clear commitment for regulating ESG rating agencies despite strong public calls from financial regulators such as ESMA in Europe, AMF in France and even IOSCO globally.
WWF is concerned about how and when the Commission’s commitments in the Strategy will be implemented. If the Commission is serious about tackling climate change and biodiversity loss, the actions committed to in the Strategy will often have to be completed by legislative changes with an ambitious timeline for their implementation...
...Article 8 Taxonomy disclosure Delegated Act (DA)
WWF welcomes the Commission’s Delegated Act, and we find positive that it is largely aligned with the European financial Supervisory Authorities’ proposal - for example, in requiring the use of a standardised template - which we agree with overall. If the Commission wants to keep its ambitions high, the Delegated Act should also be consistent with the recently published Corporate Sustainability Reporting Directive.
However, we believe that the 30 June 2024 disclosure deadline for SMEs is far too late and should be brought forward to 2023. The Commission should be more inclusive towards SMEs by providing them with the necessary resources in order to comply with various disclosure requirements.
In addition, the review to include public exposures to central governments and central banks by 30 June 2024 only is also too late and should be shortened to 2023. Time is of the essence and the EU should act accordingly...
...Legislative proposal for an EU Green Bond Standard
The EU Green Bond Standard proposal rightly plans supervision by the European Securities and Markets Authority (ESMA), as recommended by the EU Commission's Technical Expert Group, which WWF was part of. The Standard will rely on the EU taxonomy to define what is “green”: the scientific credibility of the EU taxonomy will determine the reliability of the Standard. The current good practice in the market is that fossil gas and nuclear are never part of green bonds.