The report includes a range of recommendations which puts addressing climate change and other environmental problems at the heart of renewing the European project and bringing economic recovery to the EU. Among the recommendations is one suggesting that the European Commission should support the development of green finance benchmarks that measure portfolio alignment with climate targets.
The report suggests that the European Commission has recognised this and welcomed its commitment to double the financial capacity and duration of the European Fund for Strategic Investment (EFSI) to provide at least €500 billion of investments by 2020: of which at least 40% will be dedicated to climate action and its plans to refresh the Capital Market Union (CMU) which include the establishment of an expert group to develop a comprehensive strategy on sustainable finance.
National financial regulators should then adopt regulation that asks financial institutions to disclose whether their activities align with scenarios that keep global temperature increases to below 2°C and also 1.5°C using these benchmarks, says the report. Pointing to legislation that has already been adopted in France – Article 173 of its energy transition law the report suggest that it should be the model for across the EU. The French Social Investment Forum has just published a handbook to provide information on Article 173 which requires investors to disclose their contribution towards meeting climate goals.
E3G’s report also recommends that the EU should explicitly link the CMU and Investment Plan to the Energy Union, by asking member states to develop national capital raising plans as part of their National Energy and Climate Plans (NECPs). This, the authors suggest, would make sustainable investment opportunities more visible to the private sector and increase investor confidence in the NECPs which form part of the development of the Energy Union.
Revisiting fiduciary duty
Supporting the work of the United Nations Principles for Responsible Investment initiative, the report also recommends that the European Commission should end the debate on environmental, social and governance (ESG) risk in the context of fiduciary duty as soon as possible. It should provide guidance to the competent Member State authorities on how they should interpret fiduciary duty in the national legal context. This guidance should clarify that asset owners have a duty to pay attention to long term factors including ESG factors where they are likely to be financially material.
The UK’s ShareAction which formed part of the groups participating in the initiative said that in the light of the UK’s decision to leave the EU there will be a period of uncertainty about the future of the City of London and the country’s financial sector. However, Camilla de Ste Croix, senior policy officer at ShareAction said: “Britain’s exit from the EU presents a real opportunity for the City of London to innovate and lead the way on sustainable investment. The next few years will be critical if the City wishes to consolidate its position as the green finance hub of Europe.”
ShareAction will be hosting a free event on 11th November to debate the future of green finance in the UK and Europe in light of the referendum result.