Streamlining sustainable investment: EU’s new green finance strategy

Streamlining sustainable investment: EU’s new green finance strategy

Mar 13, 2018
Image Credit: Yanni Koutsomitis via Flickr
Tuesday, March 13, 2018

Brussels – The European Commission has published its green finance strategy implementing many of the recommendations a high-level expert group made earlier this year. Amongst the points are a green finance taxonomy, corporate transparency and a spotlight on green retail banking.

The new roadmap for a green financial system is supposed to support the EU’s climate and sustainable development agenda. According to the European Commission around €180 billion of additional investments a year are needed to achieve the EU’s 2030 targets agreed in Paris, including a 40% cut in greenhouse gas emissions.

The Action Plan on sustainable finance is part of the Capital Markets Union’s (CMU) efforts to connect finance with the specific needs of the European economy and it is also one of the key steps towards implementing the historic Paris Agreement and the EU’s agenda for sustainable development. Most notably the new strategy includes a common classification system in the EU for defining sustainable investment making it easier for investors to turn towards products that fit the sustainability criteria.

“At least 40% of EFSI infrastructure investments will be directed to projects that contribute to reaching the Paris Agreement goals to fight climate change,” said Jyrki Katainen, the Commission’s vice-president responsible for jobs, growth, investment and competitiveness. “At the same time, creating the conditions for private investors to invest sustainably is crucial to achieve the transition to a cleaner, more resource-efficient, circular economy.”

Key features of the action plan include:

  • Establishing a common language for sustainable finance, i.e. a unified EU classification system.
  • Creating EU labels for green financial products on the basis of this EU classification system to allow investors to easily identify investments that comply with green or low-carbon criteria.
  • Clarifying the duty of asset managers and institutional investors to take sustainability into account in the investment process.
  • Requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability.
  • Incorporating sustainability in prudential requirements: banks and insurance companies are an important source of external finance for the European economy.
  • Enhancing transparency in corporate reporting.

Image Credit: Yanni Koutsomitis via Flickr