First published on 31st January 2018 in Envinonmental Finance
It has often been remarked by those in the game long enough to know, that the European Commission’s High-Level Expert Group on Sustainable Finance (HLEG) is a High-Level Expert Group unlike any seen before. These Groups, HLEG members were told several times along the way, are for the most part dull and rather sleepy affairs marked by long technical discussions and usually ending in reports that never again see the light of day.
Not so, this one. Right from the start things were different.
First, a very knowledgeable but also very passionate group of individuals drawn from civil society, financial services and academia were selected as Members. From the first to last meeting we had during 2017 the energy was high and the over-riding mood was one of both openness to debate and challenge and a wish to make the most of the opportunity we had been given to drive positive change in the financial system.
Second, a very active supporting cast of observers from central and public banks and European and international bodies with an interest in sustainable finance were brought in to deepen the pool of expertise around the table. The observers did not limit themselves to only observing. They were encouraged to be active participants in the wide-ranging and intense interrogation of the barriers and solutions to building a sustainable financial system that formed the backbone of the HLEG process. They were an invaluable support to members as we deliberated and then made our final recommendations.
Third, the Chairman selected to run the group – Christian Thimann of AXA – was notable for his immense intellectual capacity, resolve to ‘get to the bottom of things’ and keen sense of humour. This last asset proved invaluable in keeping the Group together in some of the tougher parts of the process as people burned through nights and weekends to get the interim and the final texts agreed.
And agree it we did, with the final report released on 31 January 2018, 13 months on from the creation of the Group. It is true that achieving this feat required compromises on all parts: such processes always do. But it is my view that the Chair and the European Commission Secretariat did an immense job bringing everyone together, encouraging members to rigorously assess and balance views and brokering what is an ambitious but also practical text. It was an exemplary process that should raise the bar for how all such Expert Groups are run in future.
The final report is something everyone involved can be proud of. And it’s already having an impact.
At the One Planet Summit in Paris in December 2018 Vice President Dombrovskis shared an overview of what the Commission is already doing in terms of a response and what we can expect next. It includes:
- Integrating sustainability considerations into the duties that asset managers and institutional investors have towards those whose money they manage, to clarify the requirement to take into account risks related to environmental, social, and governance factors.
- Exploring the modalities of a 'green supporting factor' in prudential rules, to boost investments. Lower capital charges would create incentives for investors to favour low-carbon investments or loans.
- Incorporating ESG factors into the mandate of supervisory authorities, to enable them to monitor how financial institutions identify, report, and address environmental, social and governance risks.
In addition, it was announced the Commission are exploring:
- Developing a European taxonomy – a classification system for sustainable finance – providing investors with a common understanding of how climate-smart, environmentally-friendly and sustainable investments can be defined, and made.
- Establishing EU quality standards and labels for all sustainable assets over the long term, to address market fragmentation and accelerate the development of these bonds and funds, which are earmarked to fund activities with a positive environmental impact.
More detail is provided in the final report. And more announcements can be expected from the European Commission soon. On 7 March we can expect the Commission will respond with Sustainable Finance Action Plan. And on 23 March there will be a major conference in Brussels in formally launching the report.
By this point the HLEG will have been formally disbanded, but the Group plans to stay in touch over the coming year (much as the Taskforce on Climate-Related Financial Disclosures did) to monitor progress.
Has it been worth it? Yes. The Report will, I hope, sets the terms the debate on building a Sustainable Financial System in Europe for years to come. I also hope it will act as a blueprint for other jurisdictions keen to undertake the ‘deep re-engineering of the financial system’ the European Commission has acknowledged is needed to deliver not just a sustainable financial system but a sustainable economy.
Read the final report here.