EU gets seriously sustainable about finance | KPMG | SE
close
Share with your friends

EU gets seriously sustainable about finance: the new legislation explained

EU gets seriously sustainable about finance

The future of sustainable finance is here! The EU’s vision for sustainable growth is impressive, and means several important regulatory changes with wide-ranging impacts.

1000

Sustainability Advisory Lead

KPMG i Sverige

Kontakt

Relaterat innehåll

The EU has not wasted any time following the recommendations of the High-Level Expert Group on sustainable finance, which launched its report in end-January 2018. Sustainable finance puts Environmental, Social and Governance (ESG) considerations in the core of the financial system to support the transformation of Europe's economy into a greener, more resilient and circular system. The definition of responsible investment is very similar.

On 24 May 2018, the EU published its first batch of legislative proposals on sustainable finance, the first concrete steps of its bold action plan in this area, published earlier in May. With this action plan, the EU has shown its intent to become a world leader in sustainable finance.

With all this recent activity, let us examine the immediate impacts for those in the financial marketplace.

The main actions proposed by the EU

The mainstreaming of sustainability in finance is to be effected via ten specific actions:

  1. Establishing an EU classification system for sustainable activities
  2. Creating standards and labels for green financial products
  3. Fostering investment in sustainable projects
  4. Incorporating sustainability when providing financial advice
  5. Developing sustainability benchmarks
  6. Better integrating sustainability in ratings and market research
  7. Clarifying duties of institutional investors and asset managers
  8. Incorporating sustainability in prudential requirements
  9. Strengthening sustainability disclosure and accounting rule-making
  10. Fostering sustainable corporate governance and attenuating short-termism in capital markets
     

Note this

Given its broad application, this action plan will undoubtedly affect the entire financial market, from banking and asset management to insurance and pension funds. The impact will first and foremost be felt through imminent legislative changes, both through amendments to existing legislation and through new regulations and standards.
The action plan strongly encourages responsible investment, which affects the way capital is allocated in the investment universe. From corporates point of view, ESG filters impacts on the cost of capital. It is preferable to position your company in the typical eligible part of the investment universe of investors.

Expected changes to existing regulation

The new action plan puts the interests of potential investors in the centre. To ensure that sustainability factors are in compliance with investors’ preferences, the EU will amend MiFID II and IDD regulatory frameworks for banks and insurers respectively. Additionally, the Commission will specify the content of the prospectus for green bonds issuance, to guarantee that investors receive the needed information.

To further enhance sustainability considerations in banking sector, the Commission will also explore the feasibility of the inclusion of climate-related risks in risk management functions and the potential calibration of banks’ capital requirements.

Future regulation

As mentioned above, the first legislation package of the action plan was released in May. It contains proposals for three new regulations:

  • A regulation on the establishment of a taxonomy for sustainable investments and products: this regulation would establish the conditions and framework to gradually create a unified classification system (“taxonomy”) for what can be considered an environmentally sustainable economic activity. This is the first and essential step in the efforts to channel investments into sustainable activities.
  • A regulation on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341: this regulation would introduce disclosure obligations on how institutional investors and asset managers integrate environmental, social, and governance (ESG) factors into their risk processes. Requirements to integrate ESG factors into investment decision-making processes, as part of their duties towards investors and beneficiaries, will be further specified through delegated acts.
  • A regulation amending benchmark regulation: this amendment would create a category of benchmarks comprising low-carbon and positive carbon impact levels, providing investors with better information on the carbon footprint of their investments.

In addition, the Commission is, from 24 May to 21 June, seeking feedback on amendments to delegated acts under:

Takeaway

The future of sustainable finance is here! The EU’s vision for sustainable growth is impressive, and means several important regulatory changes with wide-ranging impacts. To keep up with the pace, finance market members should be as proactive as possible.

KPMG’s network of professionals within responsible investment and sustainable finance will keep a close eye on the EU’s further actions and new developments.

Stay tuned!

Julien Ganter, Partner
KPMG Luxembourg

Laetitia Hamon, Senior Manager
Sustainability Services, KPMG Luxembourg

Tomas Otterström, Partner
Head of Responsible Investment and Sustainability Services at KPMG in Sweden;
KPMG Global Lead, Responsible Investment Services

Riikka Sievänen, Ph.D., Advisor
Responsible Investment and Sustainability Services at KPMG Finland;
Head of KPMG Global Working Group on Responsible Investment Services

Kontakta oss

 

Offertförfrågan

 

Skicka