As the European Commission held this week its second high level conference on sustainable finance issues such as how to scale up private capital for green investments across borders, and, as this legislature is approaching the end of its mandate, we believe it is the right moment to look at the actions announced in the European Commission action plan published in March last year and what has been done so far.
On 24th May 2018, the European Commission proposed three legislative proposals adressing three of the flagship actions of its action plan, namely the so called taxonomy, disclosure and benchmark proposals.
- Taxonomy – Establishing an EU classification system for Sustainability activities:
This proposal is far from being adopted. The European Parliament after intense discussions is planning to vote on its position next week in plenary, however there are still intense debates in the European Parliament ahead of this final vote, so the outcome is not clear at this stage. On top of this, the European Council is not advanced in these negociations. Therefore a final adoption of this proposal will take a substantial amount of time.
- Developing sustainability benchmarks :
This proposal has been subject to a political agreement in trilogue on 26th February 2019. On Thursday this week the ECON Committee of the European Parliament has approved this agreement and the plenary sitting is scheduled to approve it next Tuesday. This text will then need to be approved by the Council before being published in the official journal.
- Clarifying institutional investors and asset managers’ duties :
This proposal was the subject of a political agreement in trilogue on 6th March 2019. We are now expecting the European Parliament and the Council to approve formally the text. Once this is done the text will be published in the Official Journal.
On 4th January 2019, the Commission has published draft rules on how investment firms and insurance distributors should take sustainability issues into account when providing advice to their clients. This should be published in the Official Journal shortly.
What are the next steps ?
We are expecting further publications from the European Commission in June 2019. Indeed the Commission has set up in June 2018 a technical expert group to provide advice on further steps linked to the proposals made in May 2019.
This expert group will publish a package of recommandations :
- A report with guidance on the EU Climate Change taxonomy.
- A report for the first ever EU green bond standard.
- Advice for the methodologies of low-carbon benchmarks, to add the final touches to the recently agreed legal proposal.
The European Commission will also publish the revised guidelines for companies to disclose non-financial and climate risks, based on the January recommendations of the Technical Expert Group. The guidelines will be aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Companies will be asked to report not only on how climate change might influence their performance, but also on how their activities impact the climate.
|Some of the work streams we should also watch out for:
– Standards and labels for financial products: The European Commission is currently working on applying the EU Ecolabel to financial products and is planning to have its standards for a first set of products ready for 2020. Currently the reflections are focused on a few products including UCITS.
– ESMA is working on how to promote sustainability in EU capital markets focusing on disclosure requirements applicable to credits ratings as well as on investments funds (UCITS, AIFMD).
As one can see, quite a lot has happened in the area of sustainable finance from a regulatory perspective, and a lot more is still to come. First there are quite a few actions on the action plan to be tackled, second the next European Commission will certainly make it one of its priorities given the climate urgency and citizens concerns on these issues.
By Aurélie CASSOU, ABBL & ALFI Senior Adviser, European Affairs