The EC Vice President Valdis Dombrovskis discussed the EC Action Plan for sustainable finance during a keynote speech at the Principles for Responsible Investment (PRI) Conference in Brussels. He informed the audience that the European Parliament and member states reached a deal on a binding target of 32% for renewable energy by 2030 and to improve energy efficiency by 32.5%. In both cases, there is also the possibility to further raise these targets by 2030.
He also highlighted the close relationship between work at the PRI and the EC Action Plan for Sustainable Finance, which EC had proposed in March. He then provided an overview of the first four actions of EC to tackle climate change:
- EC has set up an expert group to develop the EU-wide taxonomy—or classification-system—for sustainable activities, based on scientific evidence; the taxonomy will provide common definitions for what is green and what is not. The first climate taxonomy of EU should be ready by the second half of next year and should enter into force six months later. After that, EC will extend the classification to other environmental objectives, related to the circular economy, pollution, water and marine resources, and ecosystems. EC could also expand it to social objectives.
- The second proposal concerns asset managers and institutional investors. "I am sure that most PRI signatories agree with me that by considering sustainability, they can more fully assess long-term risks and opportunities for their clients. But for many actors, sustainability risks are not systematically integrated into their decision-making process," said Mr. Dombrovskis. Thus, EC is proposing to clarify that this is indeed part of fiduciary duty. The details will be spelled out in the upcoming level 2 legislation and EC will soon send a call for advice to EIOPA and ESMA on this. Additionally, there is still a lack of disclosure that means end investors do not have the full information they need regarding sustainability. Therefore, EC has proposed that institutional investors should disclose how they take into account sustainability risks and what impact these risks may have on returns.
- The third proposal relates to benchmarks. With its proposal, EC wants to make benchmarks a reliable tool for investors who want to invest in low carbon strategies. It will be done by establishing a new category of benchmarks, which includes two distinct types of benchmarks. The first type would be the low-carbon benchmark. The second type is a positive carbon impact benchmark, which should be aligned with the two-degree objective in the Paris agreement. EC has proposed that asset managers and institutional investors should be required to inform clients about how well their sustainable investment products fit with a reference benchmark. If no index has been designated as reference benchmark, it will be up to the providers to explain how their sustainability targets are reached.
- Finally, the fourth measure relates to the investment advice that investment companies and insurance distributors give to their clients. EC will propose to update the suitability test, so retail investors are asked about their sustainability preferences. Clients would then need to be offered investment products in line with these preferences. The aim is simple: to make it easier to invest in green assets, for those who want to.
Related Link: Speech
Keywords: Europe, EU, Banking, Securities, Insurance, Sustainable Finance, Action Plan, Taxonomy, Disclosures, Benchmarks, EC
Next ArticleBenoît Cœuré of ECB Speaks on Future of FMIs
ECB published a decision allowing the euro area banks under its direct supervision to exclude certain central bank exposures from the leverage ratio.
ESAs launched a survey seeking feedback on the presentational aspects of product templates under the Sustainable Finance Disclosure Regulation (SFDR or Regulation 2019/2088).
ECB published input of the European System of Central Banks (ESCB) into the EBA feasibility report on reducing the reporting burden for banks in EU.
ECB finalized the guide on assessment methodology for the internal model method for calculating exposure to counterparty credit risk (CCR) and the advanced method for own funds requirements for credit valuation adjustment (A-CVA) risk.
EBA published an Opinion addressed to EC to raise awareness about the opportunity to clarify certain issues related to the definition of credit institution in the upcoming review of the Capital Requirements Directive and Regulation (CRD and CRR).
APRA is consulting on updates to ARS 210.0, the reporting standard that sets out requirements for provision of information on liquidity and funding of an authorized deposit-taking institution.
FED released hypothetical scenarios for a second round of stress tests for banks.
FED is proposing to temporarily revise the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes necessary to conduct stressed analysis in connection with the re-submission of capital plans, using data as of June 30, 2020.
FED adopted a proposal to extend for three years, with revision, the information collection under the market risk capital rule (FR 4201; OMB No. 7100-0314).
EBA published a voluntary online survey seeking input from credit institutions on their practices and future plans for Pillar 3 disclosures on the environmental, social, and governance (ESG) risks.