Sustainable finance policy moves towards action | KPMG | SG
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Sustainable finance policy moves towards action

Sustainable finance policy moves towards action

Since the 2015 Paris Climate Agreement EU policymakers have been looking at how to better align sustainability goals with economic, investment and financial stability policy-making. As we covered in 2016 (see here), this will include revisiting parts of the regulatory framework. The High Level Expert Group (HLEG) set up by the European Commission to advice on a sustainable finance strategy has published its final report.

The HLEG's final report contains recommendations, including:

  • Create a taxonomy of sustainability classifications
  • Impose explicit sustainability duties on investors
  • Reform disclosure rules to improve risk transparency
  • Launch EU green bond standard and label
  • Scrutinise Boards through a sustainability lens
  • Build sustainability into the mandate of the European Supervisory Authorities

In addition, there are cross-cutting and sector-specific recommendations, including:

  • Update IOSCO Benchmark Principles to refer explicitly to benchmarks
  • Raise quality of non-financial reporting to the same level as financial information
  • Assess implications on sustainability lending from incoming Basel rules
  • Assess how Solvency II could be adapted to facilitate sustainable investment
  • Asset managers' stewardship should take account of sustainability
  • Review role of MiFID II in long-term sustainability research

The European Commission is already looking at targeted legislative action, for example the recent consultation on the fiduciary duties of institutional investors. Over the coming weeks both the European Parliament and European Commission will hold public hearings on sustainable finance. In its draft report (PDF 350KB) the European Parliament takes a broad perspective that the financial sector as a whole needs to be more orientated to sustainability, through legislative means if necessary.

Next steps will be for the Commission to publish its action plan for sustainable finance in March 2018. As with the broader Capital Markets Union strategy the Commission is likely to try to work within the existing regulatory framework and seek industry-led solutions where possible. However with ambitious targets of 40% reduction in CO2 emission by 2030 (as outlined in the European Commission's 2020 climate and energy package), the financial industry will be under pressure to help deliver on the investment levels required.

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