Sustainable finance

Sustainable finance

Aiming to achieve the EU’s 2030 climate targets agreed at the COP 21 summit in Paris, the Commission launched in March 2018 an Action Plan on financing sustainable growth “for a greener and cleaner economy”. This Action Plan builds on the recommendations presented by the High-Level Expert Group on Sustainable Finance in January 2018. Further, the European Parliament (EP) published an own-initiative draft report on Sustainable Finance in April 2018.

The Commission's Action Plan sets out a roadmap for further actions to re-orient private capital to investments by taking into account environmental, social and governance (ESG) considerations. Such actions include, in particular, amendments to the MiFID II and IDD delegated Acts to ensure that investment firms and insurance distributors take into account their clients’ sustainable preferences (ESG factors) when assessing the range of financial instruments and insurance products to be recommended.

The key features of the EU Strategy proposed by the Commission are:

  • To establish a unified EU classification system – known as taxonomy –, meaning a common language to define what is sustainable;
  • To create EU labels for green financial products; this will allow investors to easily identify investments that comply with green or low-carbon criteria;
  • To clarify the duties of asset managers and institutional investors: these latter shall take sustainability into account in the investment decision process and be transparent towards their clients in this respect;
  • To require insurance and investment firms to advise clients on the basis of their preferences on sustainability;
  • To incorporate sustainability into prudential requirements;
  • To strengthen sustainability disclosure.

Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union­ said: Only with the help of the financial sector can we fill the annual €180 billion funding gap to reach our climate and energy targets. This will help to support a sustainable future for generations to come”.

Following its Action Plan, the Commission presented in May 2018 three legislative proposals: i) on a unified set of definition of sustainable activities – taxonomy –, ii) on the disclosure requirements and sustainability duties of institutional investors and asset managers, iii) on low-carbon and positive-carbon impact benchmarks.

The Commission also launched a public consultation to amend the MiFID II and IDD Delegated Acts to integrate sustainability preferences into the product selection process and the suitability assessment. Following this consultation, the Commission published in January 2019 draft rules amending these MiFID II and IDD Delegated Acts to ensure that investment firms and insurance distributors who provide advice on insurance-based investment products (IBIPs) take sustainability issues into account when providing advice to their clients.

Moreover, EIOPA and ESMA published for consultation (in November 2018 and December 2018 respectively) draft technical advices on possible amendments to the delegated acts under the IDD and the MiFID II concerning the integration of sustainability risks and factors. EIOPA and ESMA had received a formal request (mandate) from the Commission to provide technical advice supplementing the initial package of proposals. The Commission requested EIOPA and ESMA to provide technical advice by no later than 30 April 2019.

BIPAR’s position

BIPAR welcomes the European Commission’s Action Plan and supports the Commission’s and the European Parliament’s objectives that lead to a more sustainable world, moving the economy towards low carbon technology and resource efficiency, thereby creating jobs and boosting productivity and the wellbeing of EU citizens.

Many insurance and financial intermediaries are already promoting sustainability principles in the services, advice and products they offer their clients, while ensuring that they are suitable for their needs.

BIPAR believes that it is necessary:

  • To clarify that any additional transparency requirements introduced will be in relation, not to each and every financial product, but to products marketed as targeting sustainable investments.
  • To avoid any duplication of requirements arising from overlaps between the sustainability-related legal texts and to ensure consistency and legal clarity.
  • To allow for a sufficient period of time so that a well-built taxonomy is ready, based on which insurance and financial intermediaries will be able to recommend suitable sustainable investments
  • To provide a legal framework for a voluntary promotion of sustainability and integration of ESG considerations in the investment chain;
  • To take steps to increase the supply of appropriate sustainable products;
  • To opt for a reporting framework that is proportionate to the actual risks incurred by the institution, the complexity and degree of sophistication of the actors involved (SMEs);
  • Define the word “sustainable” in a sustainable and technology-neutral way.

BIPAR is actively monitoring the EU legislative process, in particular the planned amendments to the MiFID II and IDD delegated acts.

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