EU Commission Sustainable Finance Group Publishes 1st Report

    Stockholm (NordSIP) – The High Level Expert Group on Sustainable Finance (HLEG) established by the European Commission in late 2016 has published its first interim report (July 13), entitled “Financing A Sustainable European Economy“. The goal of the HLEG is to develop a sustainable finance strategy for the EU that is both comprehensive and overarching. This 72-page interim report shows the result of the group’s first six months of intensive work.

    Flavia Micilotta, Executive Director of Eurosif, comments: “The HLEG Interim Report, in line with the mandate of the group, looks at the role that finance can play in ensuring that investment protects the environment and promotes economic systems that are truly sustainable. The basis of this reasoning is understanding that there is a fundamental paradigm shift that we need to make and which is linked to certain ‘interdependencies’. The same ones that define what constitutes a ‘productive’ investment are linked to a project’s environmental and socio-economic impacts.”

    The report identifies two main focus areas for the EU. In short, the first one is to minimize risks by focusing on ESG factors and the second to help accelerate the transition to a low-carbon economy by strengthening the financing of long-term growth, for example with innovation and infrastructure.

    Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue and Jyrki Katainen, Vice-President for Jobs, Growth, Investment and Competitiveness say: “The expert group recommends reforming the EU’s rules and financial policies to facilitate green and sustainable investment. We need to make sure that capital flows towards sustainable projects and serves our long-term goals. For this, as the first priority, we need to work on changing the investment culture and behaviour of all market participants. This includes providing more financial and other incentives to choose and offer green products.”

    According to the report, mobilising capital for a sustainable economy is key. “Over the next two decades, Europe needs about €180 billion in additional yearly investment, notably in clean energy, to keep the increase in global temperatures to well below 2 degrees Celsius,” comment Dombrovskis and Katainen. “This is a major challenge, but also an opportunity. By reorienting public and private financial flows towards green and sustainable efforts, we can help mitigate the risks posed by climate change, and create new jobs and sustainable economic growth in the process. As Article 2 of the Paris Agreement also makes clear, the financial sector is key to enabling this transition.”

    The absence of a generally accepted system of classification makes it difficult to accurately measure the share of sustainable financial assets in Europe. The AUM of sustainability-themed funds, such as green funds, are approximately €145 billion which is only a fraction of the overall European bond and equity funds market which the report puts at €6.5 trillion. These numbers do not capture a large part of the European financing market, not the least of which is lending provided by banks. The report identifies other issues that the EU urgently has to address in order to make sustainable development an attractive investment opportunity, including the absence of a financially material carbon price.

    Christian Thimann, Chair of the HLEG comments: “Repositioning financial regulation towards sustainability cannot be done with one stroke of a pen. But neither does it require rewriting the whole system of financial regulation. Rather, it means identifying the key areas where adjustments are needed and developing specific and targeted proposals for change.”

    “We hope that this Interim Report will help to stimulate debate on sustainable finance and create the basis for engagement by a wide range of stakeholders to inform the Group’s final report due in December.”

    Read the full report here


    Picture (c) – Gü

    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA
    Aline Reichenberg Gustafsson, CFA is Editor-in-Chief for NordSIP and Managing Director for Big Green Tree Media. She has 18 years of experience in the asset management industry in Stockholm, London and Geneva, including as a long/short equity hedge fund portfolio manager, and buy-side analyst, but also as CFO and COO in several asset management firms. Aline holds an MBA from Harvard Business School and a License in Economic Sciences from the University of Geneva.

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