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March 08, 2018

EC published the action plan on sustainable finance, which is part of the Capital Markets Union's efforts to connect finance with specific needs of the European economy. The roadmap that is based on the recommendations of the High-Level Expert Group (HLEG) on sustainable finance. Along with this action plan, EC published the frequently asked questions and a factsheet on the action plan. EC is also organizing a high-level conference on March 22, 2018 to discuss this action plan.

The EC-adopted action plan on sustainable finance has three main objectives: reorient capital flows toward sustainable investment, to achieve sustainable and inclusive growth; manage financial risks stemming from climate change; environmental degradation, and social issues; and foster transparency and "long-termism" in financial and economic activity. EC has proposed an EU strategy on sustainable finance that outlines a roadmap, including the following actions, covering all relevant actors in the financial system:

  • Establishing a common language for sustainable finance—that is, a unified EU classification system, or taxonomy, to define what is sustainable and identify areas where sustainable investment can make the biggest impact.
  • Creating EU labels for green financial products on the basis of the EU classification system; this will allow investors to easily identify investments that comply with green or low-carbon criteria.
  • Clarifying the duty of asset managers and institutional investors to take sustainability into account in the investment process and enhance disclosure requirements.
  • Requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability.
  • Incorporating sustainability in prudential requirements for banks and insurers. Also, exploring the feasibility of re-calibrating capital requirements for banks (the so-called green supporting factor) for sustainable investments, when it is justified from a risk perspective, while ensuring that financial stability is safeguarded.
  • Enhancing transparency in corporate reporting via a proposal to revise the guidelines on non-financial information to further align the guidelines with the recommendations of the FSB Task Force on Climate-Related Financial Disclosures, or TCFD.

 

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Keywords: Europe, EU, Banking, Securities, Insurance, Sustainable Finance, Action Plan, EC

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