On 13 July 2017, the High-Level Expert Group
("HLEG") on Sustainable Finance
published its interim report ("Interim Report") setting
out concrete steps to create a financial system that supports
sustainable investments.
This Legal Insight is part of our dedicated newsletter series on
the European Capital Markets Union
("CMU").
Background
The growing awareness of environmental challenges and
sustainability risks as well as the adoption of the UN 2030 Agenda
and the conclusion of the Paris Climate Agreement by the EU in 2015
call for an EU strategy on sustainable finance.
Establishing an EU strategy on sustainable finance is a priority
action of the CMU. In December 2016, the HLEG was established
to advise on the development of such an EU strategy. The recently published HLEG
Interim Report was recently presented in a public hearing on
sustainable finance on 18 July 2017. At the same time, the HLEG
presented an online questionnaire on the Interim Report
aimed at obtaining targeted feedback until
20 September 2017, which would be reflected in the final
report of the HLEG scheduled for publication by the end of
2017.
Interim Report
The Interim Report identifies two imperatives for Europe's
financial system:
- to improve the financial sector's contribution to
sustainable and inclusive growth, notably by financing
society's long-term needs for innovation and infrastructure,
and accelerating the shift to a low carbon and resource-efficient
economy; and
- to strengthen financial stability and asset pricing by improving the assessment and management of long-term material risks and intangible drivers of value creation, including those related to environmental, social and governance factors.
In addition, the Interim Report presents an overall vision for a
sustainable financial system, maps out challenges and opportunities
in developing an EU policy agenda for sustainable finance, and
identifies financial policy areas in which reforms towards a
sustainable finance system might be possible.
The HLEG explores ways of integrating sustainability into the
EU's regulatory and financial framework, covering issues such
as fiduciary duty, disclosure, accounting, corporate reporting and
benchmarks. It also focusses on individual market participants and
facilitators as well as measures to promote more capital flow
towards sustainability.
Early recommendations
The Interim Report contains inter alia the following
early recommendations, whereby the Commission shall:
- develop a classification system for sustainable assets;
- develop a standard and label/brand for green bonds and other
sustainable assets as well as for sustainable funds;
- provide an EU-wide set of principles of fiduciary duties and
related concepts of loyalty and prudence that encompasses
sustainability (eg in the course of upcoming reviews of the
European financial services regulatory framework);
- strengthen disclosures by firms and financial institutions on
sustainability issues;
- integrate sustainability in all relevant EU financial
legislation (sustainability test for all future financial services
legislation); and
- develop measures to connect public authorities and investors on sustainable infrastructure opportunities by creating "Sustainable Infrastructure Europa", an organisation which shall advise public authorities on the structuring of infrastructure projects and match them with investors.
The Commission has already listed several of the HLEG's
recommendations under one of the nine new priority actions set out
in the
CMU action plan mid-term review.
Policy areas for further discussion
The HLEG also has identified policy areas that require further
discussion and analysis, such as long-term policy signals,
governance of firms and financial institutions, integrating
sustainability in ratings and accounting, stock exchange and green
finance centre, and banking.
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