The EU and governments around the world committed to the objective of a more sustainable economy and society when they adopted the Paris Agreement on climate change and the UN 2030 Agenda for Sustainable Development.
The EU is already making a difference thanks to the EU 2030 Energy and Climate framework, the Energy Union, the Circular Economy Action Plan and the EU implementation of the 2030 Agenda for Sustainable Development
The Juncker Commission has pledged to lead the implementation of the Paris climate agreement and the transition to a low-carbon and resilient economy. To succeed, more capital for green and other sustainable projects is needed: the funding gap to achieve EU climate and energy targets by 2030 is estimated at €180 billion each year.
Ultimately, sustainable finance is also crucial in order to boost the EU’s long-term competitiveness and growth. With the United States withdrawing from the Paris Agreement, the EU should establish itself as the destination for low-carbon technologies and sustainable investments, securing a substantial competitive advantage.
In March 2018, the European Union committed to lead the way in reforming the financial system to support the transition towards a sustainable economy, with the adoption of the first ever Action Plan on Financing Sustainable Growth and the successful first edition of the High-Level Conference on sustainable finance.
This is also part of the Capital Markets Union’s (CMU) efforts to connect finance with the specific needs of the European economy, thereby contributing to the EU’s carbon-neutral agenda.
Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union said: “The European Union will stand by its commitments made under the Paris Climate Agreement. As part of this agenda, the EU was an early mover on sustainable finance by recognising that boosting private capital is essential for supporting the transition towards a climate-neutral and sustainable economy. By now, other countries have made substantial progress in this area. It is time for us to join forces and make sustainable finance go global.”
In its recently adopted Reflection Paper Towards a Sustainable Europe by 2030, the Commission considered that it would be opportune to establish an international network of jurisdictions from emerging markets, developed and developing countries that are committed to advancing sustainable finance.
Given that about €6.2 trillion of annual investment in low-carbon infrastructure, such as energy, transport, buildings and water is needed globally until 2030 to limit global warming to 2 degrees Celsius, the objective of scaling up of sustainable finance is of particular importance.
In the European Union alone, the achievement of the Paris-aligned energy and climate policy targets will require an additional annual investment of €180 billion between 2021-2030 compared to business as usual.
Increasingly stretched public funds will not meet those investment needs alone. The Commission will continue its efforts to maintain strong international cooperation on sustainable finance by working very closely with all relevant international partners, with the aim to achieve greater alignment of the various financial services policy frameworks and tools that embed sustainability in the financial sector.
The latest conference hosted in Brussels by Commission President Jean-Claude Juncker and Vice-President Valdis Dombrovskis. High-level keynote speakers include French President Emmanuel Macron and Michael Bloomberg, the United Nations Secretary-General’s Special Envoy for Climate Action. European Commission Vice-President Jyrki Katainen, Commissioner for Climate action and Energy Miguel Arias Cañete and Commissioner for Environment Karmenu Vella will also address hundreds of participants discussing how best to put the Commission’s Action Plan on Sustainable Finance into practice.
The Action Plan, launched on March 8, is part of the Capital Markets Union’s (CMU) efforts to connect finance with the specific needs of the European economy to the benefit of the planet and our society. It is also one of the key steps towards implementing the historic Paris Agreement and the EU implementation of the 2030 Agenda for Sustainable Development.
Key features of the Action Plan
- Establishing a common language for sustainable finance, i.e. a unified EU classification system – or taxonomy – to define what is sustainable and identify areas where sustainable investment can make the biggest impact.
- Creating EU labels for green financial products on the basis of this EU classification system: this will 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 and enhance disclosure requirements.
- 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. The Commission will explore the feasibility of recalibrating capital requirements for banks (the so-called green supporting factor) for sustainable investments, when it is justified from a risk perspective, while ensuring that financial stability is safeguarded.
- Enhancing transparency in corporate reporting: the Commission is proposing to revise the guidelines on non-financial information to further align them with the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).
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