ECB published feedback from Eurosystem on the EC consultations on the renewed sustainable finance strategy and the revision of the Non-Financial Reporting Directive. The Eurosystem welcomes both the EC consultations. The Eurosystem highlighted that it stands prepared to provide technical expertise to EC in its competence areas and to contribute, within the limits of its mandate, to the further development of sustainable finance and the monitoring and management of risks related to climate change.
The Eurosystem emphasizes the following five key messages:
- Efforts to address the existing information gaps are welcome and fundamental to the renewed sustainable finance strategy. Sustainable finance requires a clear link to be established between the funds raised and the impact in terms of sustainability of the investment that those funds are meant to finance. Closing the gaps is a necessary pre-condition for the entire sustainability agenda to succeed. This requires a revision of corporate disclosure. It also requires standardized and commonly agreed definitions. In this respect, the EU Taxonomy is an essential milestone to provide clarity and certainty on the definition of sustainability. Finally, it requires the development of reliable, verifiable, and transparent EU standards for sustainable financial products.
- To realize its full potential, sustainable finance needs to be embedded in a policy context that is conducive to a long-term reorientation of the financial sector and the economy. This requires effective and credible incentives to guide economic decisions, along with a stable and predictable long-term strategy.
- Climate change and environment-related risks necessitate appropriate risk monitoring and risk management frameworks.
- Sustainable finance has close links to other policy priorities, in particular Capital Markets Union, and synergies should be exploited. Common standards for sustainable financial products can be a powerful driver of financial integration. The Capital Markets Union can contribute to sustainable finance objectives by making it easier for investors to seek sustainable investment opportunities across Europe. The Capital Markets Union can also enhance the risk-sharing capacity of the financial system in EU in the face of the climate challenge.
- Sustainable finance is a global issue that requires close international coordination to promote internationally consistent frameworks and prevent regulatory fragmentation.
The Eurosystem feedback on the Non-Financial Reporting Directive largely echoes the recently published views of ESAs, emphasizing the need for standardized, proportional, and mandatory disclosures. The Eurosystem welcomes initiatives to harmonize and further detail the reporting standards as well as establish a verification process of reporting by companies. The Eurosystem supports the inclusion of forward-looking information under harmonized reporting standards as well as information on governance, management procedures, and targets. It also promotes the development of loan-level reporting standards that facilitate the compliance of financial institutions with the reporting requirements under the Non-Financial Reporting Directive. Granular data provide an unprecedented level of detail for analyzing credit intermediation and defining related indicators. Thus, standardized and widely adopted loan-level reporting standards would facilitate credit institutions’ reporting of non-financial information related to their balance sheet exposure, for example the GHG emissions of their clients.
Finally, the response notes that ECB would appreciate being involved in the development of an EU non-financial reporting standard, as suggested in the public consultations document. In light of its supervisory tasks, including the assessment of safe and prudent risk management by financial institutions and the assessment of banks’ regulatory disclosures, ECB stands ready to share expertise in the development of an EU non-financial reporting standard and to contribute to any emerging aspect that falls within its fields of advisory competence.
- Eurosystem Feedback (PDF)
- EC Consultation on Sustainable Finance Strategy (PDF)
- EC Consultation on Non-Financial Reporting Directive (PDF)
Keywords: Europe, EU, Banking, Insurance, Securities, Sustainable Finance, Climate Change Risk, ESG, European Green Deal, Green Finance, Reporting, Disclosures, Non-Financial Reporting, EC, ECB
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
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