The work to curb climate change shifts gears as the financial sector starts to steer funding based on environmental considerations. ‘Green’ or sustainable finance is an essential tool of effective climate work and must be included in all relevant debate in the EU.
Sustainable finance taxonomy is one of the financial sector’s main priorities during Finland’s EU presidency term. Sustainable finance should enable different financing options and investing strategies, and regulation should support the introduction of new green products in the market. Such innovations have included, for example, green mortgages and impact investing products.
Access to reliable and comparable information is also essential – financing decisions must be based on facts, which requires adequate reporting from the target companies.
In addition to sustainable finance, Finland’s presidency will also focus on the development of the EU capital markets union (CMU). The objective is to help businesses tap into more diverse sources of funding, make markets work more efficiently, and give investors more opportunities to create jobs and growth. The likelihood of Brexit makes boosting European capital markets more important than ever.
The diversification of funding sources is also in the best interests of national markets. While banks have a crucial role as providers of funding, other sources and market players are also needed. At the same time we must look after banks’ capacity to finance economic growth both through direct means like lending as well as indirect means like market making.
The CMU must not be built on detailed regulation, however, but instead on taking down unnecessary obstructions that hinder cross-border investments. The development of well-functioning and diverse capital markets must be market-driven and primarily based on best practices.
Investor protection has improved in both quality and clarity with recent changes in regulation. On the other hand, some parts of the regulation are too detailed and complex. Clients feel that making an investment is a laborious process and that the excessive amount of information is counterproductive to focusing on the essentials. This kind of regulation is not aligned with the goals of the CMU. If some parts of the regulation are redundant or too heavy-handed, or do not work as intended, they should be amended or dismantled.
Moreover, the EU should not implement taxation that contradicts the goals of the capital markets union. The proposed financial transaction tax is one example. It would hinder the markets’ development and increase costs for companies that seek funding and other services from the markets.