EU Commission action plan on sustainable finance

In March 2018, the European Commission adopted an action plan on sustainable finance as part of a strategy to integrate environmental, social and governance considerations into its financial policy framework and mobilise finance for sustainable growth. In May 2018, the Commission released the first legislative package under the action plan. The four proposals included in the package are: (1) a unified EU classification system (‘taxonomy’), (2) investors’ duties and disclosures, (3) low-carbon benchmarks, (4) better advice to clients on sustainability. In July 2018, the Commission also established a technical expert group on sustainable finance (TEG) to inform work on the action plan.

Over the course of 2019, the TEG has published several reports and recommendations on sustainable finance. These include:

More information on the work of the TEG can be found here. For an open letter calling on the EU Commission to include human rights expertise in the technical expert group on sustainable finance, to which the Business & Human Rights Resource Centre was also a signatory, see here.

In December 2019, two of the legislative reforms will enter into force - namely the Low Carbon Benchmarks Regulation and the Disclosure Regulation - and co-legislators reached a common understanding on the taxonomy, subject to approval by the European Parliament and the Council. A new briefing by Global Witness and Action Aid, available below, outlines what the new disclosure rules mean, and how they can work most effectively for people and the planet.

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Article
17 December 2019

EU reaches deal to define 'sustainable' investment

Author: Elena Sánchez Nicolás

The Finish EU presidency, European Commission and the European Parliament on Monday evening (16 December) all agreed on the common classification system for environmentally-sustainable investments...

The taxonomy also aims to end greenwashing and oblige corporates to disclose environmental, social and governance (ESG) factors and risks...

The commission is expected to draft technicalities of the different categories "low-carbon", "transition" or "enabling" activities by the end of 2020, although the full set of labels will be developed by a Technical Expert Group on Sustainable Finance...

Gas and nuclear [...] energy forms, like all technologies covered by the taxonomy, will be subject to the "do not significant harm" (DNSH) principle...

[A]ccording to Sébastien Godinot, economist at NGO Worldwide Fund for Nature (WWF), "the final result is a robust and balanced deal ensuring that the taxonomy will be built on climate and environmental science – a must for this critical part of the EU sustainable finance agenda"...

[A] coalition of more than 30 civil society organisations believe that "given the urgency of the climate crisis, the law should ensure that the climate taxonomy enters into force before the end of 2020".

"We cannot afford to delay such action as investments are badly needed," they wrote in a letter to EU top negotiators.

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Article
13 December 2019

New policy brief: EU Regulation on Investor Disclosure on sustainability risks and due diligence

Author: Global Witness & ActionAid

"EU INVESTOR DISCLOSURE REGULATION", 9 Dec 2019

New rules, which came into force in December 2019, require European investors such as banks, pension funds and insurers, to disclose their impacts on people and planet and to publish the action they are taking to prevent harms.

Our new briefing, co-authored with Action Aid, outlines practically what the rules mean, and how they can be implemented in a way that may be most effective for people and the planet...

As part of these new rules, investors will now need to:

  • be transparent about the principal adverse impacts their investments have on people and planet;
  • publish details of their “due diligence” policies to make sure they can systematically identify, prevent and mitigate and account for those adverse impacts...

This briefing is intended to provide clarity on the impact of these rules and clearly outlines how under the new regulation investors must be able to identify whether the assets or companies they are investing in will have any negative impact on people and the planet and then mitigate that impact.

EU member states will have until May 2021 to fully implement these rules. We will be calling for speedy and robust implementation of these rules...

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Item
27 November 2019

[FULL TEXT] Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector

Author: Official Journal of the European Union

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Article
15 November 2019

Council of EU Adopts ESG Disclosure and Benchmarks Legislation

Author: Latham & Watkins LLP, Lexology

On 8 November 2019, the Council of the EU [...] announc[ed] the adoption of legislative reforms that aim to enhance the proposed capital markets union. Notably, two of the reforms are related to sustainable finance: the Low Carbon Benchmark Regulation (LCBR), and the Disclosure Regulation...

The LCBR amends the previous Benchmarks Regulation, and was introduced in response to the perceived lack of uniformity among existing low-carbon indices...

To combat these issues, the LCBR introduces the following:

  • A new category of benchmarks, comprising two types of financial benchmark: an EU climate transition benchmark, and a “Paris-aligned” benchmark...
  • An obligation for all benchmarks [...] to disclose [...] whether or not their benchmarks pursue environmental, social, and corporate governance (ESG) objectives...
  • An extension of the transition regime under the Benchmarks Regulation to 2021, for critical and third-country benchmarks...

[T]he LCBR empowers the European Commission to lay down the specific minimum standards for the two new benchmarks... [T]he Commission will take into account the work of the Technical Expert Group on Sustainable Finance, which published a final report on the climate-related benchmarks [...] on 30 September 2019...

The Disclosure Regulation governs ESG disclosure requirements for financial market participants and financial advisers, and how those firms integrate ESG factors into their investment decisions... The next step is for European supervisory authorities to come up with specific and detailed rules for the implementation of the Disclosure Regulation...

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Article
26 August 2019

EU sustainable finance 'taxonomy' proposal provides insufficient social & human rights safeguards, argue NGO experts

Author: Eleni Choidas, ShareAction, Lis Cunha, ActionAid International & Rachel Owens, Global Witness, via Euractiv

'Human rights and green finance: friends or foes?', 22 August 2019

...EU Member States in the Council are currently discussing the Taxonomy proposal... Once finalised, it is expected that... this classification system... will help companies raise capital in environmentally friendly operations, as well as give investors a common framework that will prevent greenwashing.

Yet, ...not enough attention is being paid towards guaranteeing that the Taxonomy will not unwittingly promote harm to people as it seeks to power environmental progress...

Many vulnerable communities in the South have already lost their land and seen their food security undermined in the expanding drive for biofuel production. Cases of displacement, harms to indigenous peoples’ rights, threats and killings linked to wind, hydropower and solar projects around the world have also been reported...

It is crucial that strong social safeguards are introduced as a key compliance requirement in the Taxonomy...

The co-legislators must... ensure that complying with the Taxonomy will require due diligence processes which... are based on engagement with stakeholders impacted...

Secondly..., policy-makers must ensure the inclusion of human rights experts in the forthcoming Permanent Platform on Sustainable Finance, tasked with the continued oversight and review of these safeguards.

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Article
24 June 2019

Commission publishes guidelines to improve how firms report climate-related information and welcomes three new important reports on climate finance by leading experts

Author: European Commission

18 June 2019

The European Commission has today published new guidelines on corporate climate-related information reporting, as part of its Sustainable Finance Action Plan. These guidelines will provide companies with practical recommendations on how to better report the impact that their activities are having on the climate as well as the impact of climate change on their business...

They will provide guidance to around 6,000 EU-listed companies, banks and insurance companies that have to disclose non-financial information under the Non-Financial Reporting Directive...

Also today, the Commission welcomes three important expert reports published by the TEG on sustainable finance:

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Article
19 June 2019

EU Commission's Technical Expert Group recommends excluding coal & nuclear power from sustainable investments

Author: Sven Giegold

"Strong signal for sustainable finance: EU Commission expert group excludes coal and nuclear power from green financial products", 18 June 2019

[T]he EU Commission’s Technical Expert Group published recommendations on sustainable finance. Last spring, the EU Commission had presented various legislative proposals as part of its action plan for sustainable finance. The expert group’s recommendations relate to the classification of sustainable investments (taxonomy), a methodology for sustainable benchmark indices, measures for climate-related disclosure obligations and the design of an EU standard for green bonds.

Regarding classification, the experts recommend excluding investments in coal and nuclear power from sustainable investments. This also applies to investments meant to increase efficiency of existing fossil infrastructure. In contrast, investments that make a positive contribution to climate protection and do not undermine other environmental goals such as the protection of ecosystems should be considered sustainable. The European Parliament has already established its position for a framework law for classification, while negotiations in the Council of Ministers are still ongoing...

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Article
18 June 2019

Expert group releases climate taxonomy proposal

Author: Susanna Rust, Investment & Pensions Europe

The European Commission’s expert group on sustainable finance today published its final recommendations for a “taxonomy” of environmentally sustainable activities, which is at the heart of the EU executive’s plan to harness the finance sector for its fight against climate change...

The main report sets out technical screening criteria for 67 economic activities that can make a substantial contribution to climate change mitigation...

The TEG also published a report on its recommendations for an EU green bond standard and an “interim” report on EU climate benchmarks...

Publication of the TEG’s reports comes as political agreement on a taxonomy regulation by the EU Council and the European Parliament remains outstanding...

With its mandate having been extended until the end of this year, the TEG will launch a call for feedback by early July on those technical screening criteria that have not yet been subject to public consultation.

It will also refine and further develop “some incomplete aspects” of the proposed criteria, and develop further guidance on implementation and use of the taxonomy.

The TEG’s recommendations are designed to inform a proposed delegated act to implement the taxonomy. Under the draft regulation currently under discussion, this would be developed by the Commission and subject to full public consultation as required under standard procedures.

The Commission will be hosting a “stakeholder dialogue” on climate-related reporting and the TEG reports on Monday.

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Article
18 June 2019

Stakeholder dialogue: progress and outcomes of the technical expert group’s work on sustainable finance

Author: European Commission

On 18 June 2019, the technical expert group (TEG) on sustainable finance published three new reports:

To accompany these reports and provide a venue for an open exchange with stakeholders, the Commission is organising a Stakeholder dialogue on sustainable finance on 24 June 2019.

In addition to the reports of the TEG, during the event the Commission will present the new guidelines for companies on how to report climate-related information. These guidelines are built on the proposals made by the TEG in January 2019.

The event will also feature a session on the future of sustainable finance, where the audience will be invited to present their ideas.

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Article
23 April 2019

Investors issue strong call to action as EU Parliament votes in sustainable investment disclosure rules

Author: Global Witness

"Investors issue strong call to action - as European Parliament votes in new rules to ensure finance doesn't cause human rights abuses and environmental destruction", 18 April 2019

This week has seen historic moves from across both politics and industry, which could transform the financial sector in the European Union.

The European Parliament has made a major step towards a more ethical financial sector, by unanimously voting for new rules that mean investors will have to put proper measures in place ensuring their activities do not cause human rights abuses or environmental destruction.

This major move was also backed by big players in the investment industry itself – with the likes of Aviva, Hermes, Sycomore and Robeco issuing a major call on investors to set up and carry out robust due diligence processes to manage risks to people and the environment. They also urgently called on governments to support investor due diligence through better regulation of financial systems...

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