Brussels/Luxembourg – The European Commission wants the financial system to play a key role in the transition towards a greener, more inclusive economy. A new action plan aims to provide Europe with a new financial framework, ensuring that investors integrate sustainability issues into all of their investment decisions and forcing companies to inform customers on how their activities are impacting the planet or their local environment.
Following up on the first ever EU Action Plan on Sustainable Finance, the new proposals will allow the financial sector to step up its fight against climate change.
“There are compelling arguments for putting the financial sector at the service of our planet,” the European Commission wrote in a statement, where it also quite bluntly stated that the impact of climate change is already threatening financial stability and has led to major economic losses through floods, land erosion or draughts.
Under the proposed disclosure requirements, “all financial entities that manage investments on behalf of their clients or beneficiaries will now have to inform them about how their activities are impacting the planet or their local environment”.
The proposed regulation also forces asset managers, pension funds, and insurers to report on how they integrate environmental, social and corporate governance (ESG) risks into their investment and advisory processes.
Luxembourg-based investors group Candriam has already published the action plan’s implications for investors writing that they will now need to observe the EU Action Plan’s recommendations for the financing of a more sustainable world. The proposed measures include reorienting capital flows, mainstreaming sustainability in risk management and fostering transparency and long-termism.
“It has taken 10 years to get to this point… but we are simply thrilled with the progress that has been made,” Naïm Abou-Jaoudé, Chief Executive Officer of Candriam, said. “When the world is forced to fundamentally change how it consumes its available resources in order to preserve the earth for future generations, we all need to give more careful consideration to the implications of our actions.”
According to the Commission, the EU financial sector has the potential to multiply sustainable finance and become a global leader in this area. It also hopes for the new measures to have a positive effect on economic growth and job creation.
“We should put our money into projects that are compatible with our decarbonisation objectives and the fight against climate change,” Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union, said. “This is important for the environment and the economy, but also for financial stability. Between 2007 and 2016, economic losses from extreme weather disasters rose by 86 per cent.”
But according to Jyrki Katainen, Vice-President responsible for Jobs, Growth, Investment and Competitiveness, mobilizing private capital to fund sustainable investment is essential: “To achieve the EU’s 2030 climate targets, we need around €180 billion a year of additional investments in energy efficiency and renewable energy.”
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