Inside Brussels’ new green finance plan
Antonia Pryzbyslawski and Clément Solal
To meet its goal of reducing greenhouse gases by 2030, “Europe must steer about €480bn of additional investments each year into the climate transition”, the European Commission (EC) estimates. On Tuesday, 7 July, Brussels will unveil its plan for meeting this huge challenge, within its new “sustainable finance” strategy, of which L'Agefi viewed a draft. The document lays out the European executive’s main priorities for the coming years, while mentioning several pathways.
Extending the green taxonomy
The first issue is extending the EU’s green investments taxonomy. While it was unable to decide whether to include nuclear power and natural gas in its list of green energy sources, Brussels has at least set the method through which these two controversial decisions will be made. The fate of nuclear will be decided “on the basis of scientific expertise” through the delegated acts procedure, which gives greater power to the European executive than the conventional procedure.
No date has been put forth for the presentation of this new delegated act, which will also deal with agriculture. In any case, Brussels will await the findings of the evaluation by its in-house scientific department, the Joint Research Centre (JRC), which is due out this autumn, before deciding whether to include nuclear power. An initial version of this report leaked to the press in March suggested that nuclear power met the criteria.
Legislative proposal expected in 2022
The story is different for natural gas. The Commission this time plans to “present a legislative proposal” and, hence, to trigger the ordinary, more political ‘co-decision’ procedure. This is a way of getting the attention of the European Parliament and the member-states after they had rejected the various compromises submitted by Brussels.
The EC plans, more broadly, to begin planning new green standards and certifications. The introduction of a “general certification framework for financial instruments contributing to the economic transition” could be put forth by 2023. Brussels also said it was reviewing adjustments to prospectus rules in order to establish “minimum standards for comparability, transparency and harmonisation of information available for all ESG securities other than capital securities.” A legislative proposal on this issue is expected sometime in 2022.
Also on the drawing board: pushing the various financial institutions to better take climate-related risk factors into account. “Better management of losses caused by sustainability risks will be essential for preserving financial stability and the resiliency of the real economy during the climate transition,” the EC warns.
The European executive will propose by yearend amendments to the Capital Requirements Regulation (CRR), the Capital Requirements Directive (CRD) and Solvency 2, in order to ensure “that climate-related risks are systematically taken into account” by banks and insurance companies. A similar initiative could be proposed for ratings agencies “to enhance transparency and guarantee that they take environmental, social and governance (ESG) criteria into account in their evaluations.”
Access to sustainable finance for SMEs and retail investors
The last big goal: “allowing retail investors and SMEs easier access to sustainable financing opportunities”. Brussels will first have to ask the European Banking Authority to suggest “new vehicles for green loans and green mortgage loans.” A second pathway: enhancing the sustainability expertise and qualifications of financial advisors. “Financial advisors are the main contact point for retail investors. It is therefore essential that they be sufficiently qualified to support the development of sustainable finance,” the document explains. Brussels has pledged to “take measures” in this area but without providing any details.