The European Green Deal: what is in it for financial services?

ABBL Published 13.12.2019

On 11 December 2019, the European Commission presented its European Green Deal before the European Parliament, during a special plenary meeting in Brussels. The most important reform package of the new Commission includes several proposals that will take form in the next five years of the mandate. The objectives of President von der Leyen are to achieve climate-neutrality in the European Union by 2050 and, at the same time, to implement the United Nation’s 2030 Agenda and the sustainable development goals.

President von der Leyen presented the Green Deal as the Commission’s growth strategy since it will involve huge investments from both public and private sectors. Indeed, the Commission estimated that the objectives of the Green Deal will require €260 billion of additional annual investment, which counts for about 1.5% of 2018’s GDP and will need to be sustained over time. To achieve that, a Sustainable Europe Investment Plan will be presented along with setting up a so-called Just Transition Mechanism, including a Just Transition Fund of €100 billion over the next seven years.

More specifically for the financial sector, in the third quarter of 2020 the Commission will elaborate a new sustainable finance strategy that will strengthen the foundations of sustainable investment. A number of steps will have to be undertaken to do so: first and foremost the taxonomy for classifying environmentally sustainable activities will need to be finalised. Currently the text is at the final stages of negotiation between the EU institutions. Once the taxonomy is adopted, it will become easier for investors and companies to identify recognised sustainable investments. The Commission will also develop an EU green bond standard and an eco-label for retail investment products.

The Commission also committed to reviewing the Non-Financial Reporting Directive by the end of 2020. Then, it will support businesses and other stakeholders in developing standardised natural capital accounting practices within the EU and internationally, in order to ensure the appropriate management of environmental risks and mitigation opportunities, as well as to reduce the related transactions costs. Indeed, climate and environmental risks will be managed and integrated into the financial system and into the EU prudential framework, in order to assess the suitability of the existing capital requirements for green assets.

During the plenary, the different groups of the European Parliament expressed their general approval for such demanding reforms, in light of the common objective to fight climate change and achieve climate neutrality. Some skepticism arrived from the extreme left- and right-wing groups, which were concerned about the financing of these proposals and the need to likely increase the EU budget. In any case, they welcomed the commitment of the Commission to present a very detailed communication and a roadmap of key actions barely ten days into its mandate.

By Silvia De Iacovo, ABBL & ALFI European Affairs

 

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