Action Plan for Financing Sustainable Growth
The EU is committed to the climate goals of the UN 2030 Agenda and recognises how essential a sustainable and resource-conserving economy is. The European financial system plays a key role in achieving these goals. In March 2018, the European Commission published its Action Plan for Financing Sustainable Growth, taking into account the UN 2030 Agenda. The ten measures set out in the Action Plan aim to achieve the following goals:
- reorient capital flows towards sustainable investment by establishing a taxonomy, creating standards and labels, fostering sustainable investment, incorporating sustainability when providing investment advice, and developing sustainability benchmarks;
- manage sustainability risks by integrating sustainability in ratings and research and incorporating sustainability into disclosure and prudential requirements; and
- foster transparency and long-termism in financial and economic activity by strengthening sustainability disclosure of companies and sustainable, long-term corporate governance.
The measures have been implemented in various EU acts and non-regulatory measures (such as the EU Green Bond Standard and the EU Communication on the Climate Target Plan).
Ecolabel Regulation (EU) No 66/2010
The European Union Ecolabelling Board (EUEB) appointed by the European Commission under this Regulation has already begun examining the criteria for retail financial products, with a decision by the European Commission expected by the end of 2021.
EU Green Bond Standard
The Technical Expert Group (TEG), appointed to support the European Commission in implementing the strategy, published this standard on 18 June 2019. On 9 March 2020, it supplemented the standard with user guidance, including a registration model for external reviewers. The European Commission is planning a legislative initiative by mid-2021, which aims to make use of the revenue generated by bonds under the Taxonomy Regulation (TR).
Green Deal
In December 2019, the European Council resolved for the EU to become climate-neutral by 2050, which requires a carbon reduction target of 50-55% by 2030. For this purpose, the European Commission published its Communication on The European Green Deal with ambitious, very broad climate protection targets including climate neutrality by 2050. This envisaged comprehensive transformation of the EU economy for a sustainable future is to be achieved in part with the support of green financing by private investors. With this initiative, the EU aims to set an example and advocate effectively for global action, involving all stakeholders in environmental change.
Renewed Action Plan for Financing Sustainable Growth
Building on the 2018 strategy, the EU aims to expand its initiatives to promote private investment in sustainable projects and activities, strengthen the EU Green Bond Standard, and establish a European environmental data space that is accessible to all. In particular, the aim is to ensure high-quality, comparable, and usable data on climate-related losses and physical risks. In February 2021, the European Commission launched a consultation to examine the extent to which non-financial and financial data should be managed in a common platform, creating a European Single Access Point (ESAP) to promote the capital markets union. ESMA is proposing that the European Commission adopt rules governing ESG ratings, after already adjusting its guidelines on disclosure requirements for credit ratings effective April 2020. In January 2021, the European Commission published a study on sustainability ratings, which ultimately is intended to serve as a basis for improving the quality and reliability of ratings. In February 2020, the Commission published a study on due diligence requirements through the supply chain, followed in July 2020 by a study on directors' duties and sustainable corporate governance. These studies aim to provide basic information that can be used to expand the taxonomy with regard to its social and governance sustainability factors. The renewed Action Plan is expected to be published by the Commission at the end of June 2021, taking various consultations into account.
Climate Law
This law aims to provide the overarching framework over the next 30 years (until 2050) for climate-related legislation in the EU and its Member States. It aims to achieve climate neutrality by 2050, to reduce greenhouse gases by 55% by 2030, and to foster greater reduction of greenhouse gases in general, including through public participation. Political agreement has been reached on the European Commission's draft of 4 March 2020, amended by the European Council on 17 December 2020. Publication of the Climate Law is expected in summer 2021.
Links:
Action Plan for Financing Sustainable Growth
Study on due diligence requirements through the supply chain
Study on directors' duties and sustainable corporate governance