EU experts offer recommendations to turn finance markets greener

The EU’s High-Level Expert Group on Sustainable Finance has put forth several measures to help financial markets combat climate change and promote sustainable development. The expert group was established by the EU Commission, who will use the group’s recommendations to draw up a plan of measures to implement the steps in practice.

The Commission established a high-level expert group to explore sustainable finance in late 2016. The twenty-member group will conclude its work and deliver its final report by the end of 2017. The group published its interim report on 13 July 2017 and will use the feedback it receives to shape its final report.

According to Esko Kivisaari, Acting Managing Director of Finance Finland and a member of the expert group, the establishment of the group proves that sustainable finance is moving from words to action. “The group has a strong consensus about its objectives; our only debate is about how to reach those objectives,” Kivisaari says.

Sustainable finance focuses particularly on climate risk. According to the Paris climate agreement, temperature rise should be contained to a maximum of two degrees Celsius. Achieving this goal requires investing 180 billion euros in renewable energy every year.

“Investments in coal may plummet”

In its interim report, the group introduces its preliminary ideas on revising the EU’s regulation to promote sustainable finance. The group also suggests ways of steering investor funds to investments promoting sustainable finance in various ways. At the same time, the group’s recommendations aim to stabilize finance markets to better prepare for future risks.

“At some point, investments in coal-based energy may plummet in value. People are increasingly investing in renewable energy – mainly solar and wind power – and developing new technologies, thus bringing down their costs,” explains Kivisaari.

The group’s work is divided into three stages. At first, it creates definitions for sustainable investing through classifications and standards. Next, it examines how investments can be steered in the desired direction. The emphasis here is on trying to better take into account long-term risks in investment decisions. Lastly, the group examines how the criteria for sustainable development can be integrated into the actual investment process.

“The expert group also explores the capital requirements for banks and insurers from the perspective of sustainable development. Assessing risks correctly is important, but we should also ensure that regulation does not prevent sensible long-term investments,” Kivisaari states.

The interim report introduces the following recommendations:

  • Creating a classification system to define sustainable investments
  • Creating a European standard for green bonds
  • Redefining asset management duties to encompass the sustainability of investments
  • Developing reporting systems to bring out sustainability issues in investments
  • Introducing a sustainability test for European regulation to better account for its environmental effects
  • Specifying the role of European supervisory authorities to require them to consider sustainability

High-level expert group press release and interim report