A consortium of European sustainable finance organisations has launched a plan to solve Europe’s investment crisis, on the day the European Commission publishes further details of its expert group on sustainable finance.
Investment in Europe has still not recovered from pre-financial crisis levels. Yet the report launched today, ‘A Sustainable Finance Plan for the European Union’ (Embargoed for Friday 28/10) , points out that the European Union has to massively accelerate investment to meet its climate and energy obligations.
The Paris Agreement on Climate Change commits signatories to make investment flows consistent with low greenhouse gas emissions and sets a commitment to keep global temperature increases to well below 2 degrees centigrade. Yet according to the European Investment Bank there is an annual investment gap of €100 billion in funding Europe’s energy infrastructure to reach its climate and energy targets.
The European Union recently announced that it would re-boot the Capital Markets Union to help meet this challenge by setting up an expert group on sustainable finance. It is also boosting the European Fund for Strategic Investment and ensuring 40% of this additional investment helped to tackle climate change.
The consortium welcomes these announcements but says far more needs to be done. It is calling on the European Commission when it undertakes its promised ‘refresh’ of the Capital Markets Union to place a priority on boosting investment in low carbon infrastructure, enhance responsible investment practices and improve the disclosure of climate risk information.
Recommendations include ensuring Europe’s public finance programmes are fully aligned with the EU’s climate targets and developing the green bond market. This would provide investors with the long-dated assets they need to ensure stable long term returns and reduce Europe’s pension fund deficit.
Ingrid Holmes, Director of the climate and energy think tank E3G said:
“By putting sustainability at the heart of the European Union’s Capital Market Union, the Commission will maximise the potential for economic recovery and future prosperity.”
Seb Beloe, Partner, WHEB Asset Management said:
“The Capital Markets Union refresh represents a key opportunity to embed sustainability considerations at the heart of a financial architecture that is fit for the 21st Century.”
Leon Kamhi, Head of Responsibility, Hermes Investment Management said:
“We strongly support the Capital Markets Union and its laudable aim of driving jobs and economic growth throughout Europe while stabilising the financial market. We believe that key to its success is the embedding of Europe’s environmental and social priorities into the CMU’s approach to the financing of and the investment in the economy’s infrastructure, industries and future technologies.”
Ian Simm, Founder and Chief Executive, Impax Asset Management said:
“With its sights on the next decade, the European Union is understandably seeking to map out the path to further economic recovery while also pioneering worldwide efforts to preserve the environment. This “Sustainable Finance Plan” makes key recommendations for how to harmonise policies in these areas.”
Philippe Zaouati, CEO of Mirova, Responsible Investing said:
“The CMU is a unique chance for Europe to rethink how capital markets can contribute to financial sustainability, through the promotion of adapted regulatory frameworks that enable investors to identify investment needs, align the interests of investors and sustainability and encourage them to create innovative tools or adapt existing tools. Sustainable finance must scale up in order for finance to serve the economic, social and environmental needs of the European economy.”
Available for comment
Ingrid Holmes is available for commentary – please contact her directly +44 (zero) 7825 829 five92, ingrid.holmes at e3g.org
Notes to Editors
1. The full report A Sustainable Finance Plan for the European Union is attached and will be available at https://www.e3g.org/docs/A_Sustainable_Finance_Plan_for_the_EU.pdf.
The main recommendations include:
- developing national capital raising plans as an integral part of National Energy and Climate Plans;
- to align public finance programmes with the EU’s climate targets;
- to develop standards for green bonds and stimulate a debate within Member States on the role of fiscal policy in promoting the green bond market;
- to clarify that asset owners have a fiduciary duty to pay attention to long term factors including environmental, social and governance factors;
- legislation to ensure asset owners consult beneficiaries on their preference for having their money invested sustainably;
- improving transparency regarding asset owner’s responsible investment policies;
- the development of green finance benchmarks that measure portfolio alignment with climate targets;
- ensuring the new expert group on sustainable finance examines how recommendations from the Financial Stability Board’s Task Force on Climate Related Financial Disclosures can be best assimilated into the EU’s existing reporting framework.
2. The consortium includes: 2 Degrees Investing Initiative; Ario Advisory; Carbon Tracker; ClientEarth; Climate Bonds Initiative; Climate Disclosure Standards Board; E3G; Eurosif; Future-Fit Foundation; Preventable Surprises; ShareAction; University of Oxford Sustainable Finance Programme; WWF
3. On Friday 28/10 the European Commission will announce the mandate for its new Expert Group to develop a comprehensive strategy on sustainable finance for the EU and opens calls for applications to the group.
4. Article 2.1 of the Paris Agreement says the following: “This Agreement, in enhancing the implementation of the Convention, including its objective, aims to strengthen the global response to the threat of climate change, in the context of sustainable development and efforts to eradicate poverty, including by:
Holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels, recognizing that this would significantly reduce the risks and impacts of climate change;
Increasing the ability to adapt to the adverse impacts of climate change and foster climate resilience and low greenhouse gas emissions development, in a manner that does not threaten food production; and making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.
5. Additional quotes of support:
Dr Raj Thamotheram, Founder & CEO, Preventable Surprises, said "The multiple wake up signals Europe is getting today are connected. European corporations have the resources to adapt if they make good intra-firm capital allocation decisions. European institutional investors are beginning to understand their primary role today is a stewardship one, to influence these capex decisions. We live in exciting times!”
Martin Rich, Co-founder and Chair of Future-Fit Foundation, said "Long-term prosperity and financial market stability will only be achieved if social and environmental sustainability are at the heart of any policies. The EU's refreshed Capital Markets Union presents an opportunity to show the rest of the world what true leadership means and to create an economic system that is truly fit for the future."
Genevieve Pons, CEO of WWF European Policy Office, said “The forthcoming Expert Group and the Capital Markets Union refresh are central opportunities to develop EU strategies to gradually align financial flows with the Paris Agreement and Sustainable Development Goals”.
Mardi McBrien, Managing Director, Climate Disclosure Standards Board, said “With the Paris Agreement entering into force, the Capital Markets Union refresh provides a great opportunity for the EU to set a clear path for businesses and investors towards a low-carbon economy. Now policymakers need to work together with companies and investors to advance climate and environmental disclosure, to ensure that climate risks are fully taken into account in financial decisions and the opportunities of the green economy are seized.”
Some points in the report echo those made by the Institutional Investors Group on Climate Change (a forum representing 128 institutional investors with over €13Trn AUM) in a paper on climate finance published in September. Stephanie Pfeifer, CEO of IIGCC said, “IIGCC welcomes this timely report. We would reinforce the call made for the Commission’s new expert group on sustainable finance to incorporate into its early work a clear focus on how recommendations from the FSB’s Task Force on Climate-related Financial Disclosures can be best assimilated into the EU’s existing reporting framework. We also believe the EU’s Sustainable Finance Plan 2030 should ensure all European financial public sector risk-sharing tools are fully aligned with the EU’s climate targets.”