EU Sustainable Finance Expert Group publishes interim report

The European Commission ‘High-Level Expert Group on Sustainable Finance (HLEG), established by the Commission, has published its first report setting out concrete steps to create a financial system that supports sustainable investments. The Commission will explore some key early recommendations to take further steps towards a low carbon, more resource-efficient and sustainable economy.’ (European Commission Press Release, full Interim Report (72 page pdf), 13 July).

‘The European Insurance and Occupational Pension Authority could in future include environmental, social and governance (ESG) risks in its stress tests of pension funds. … The other European Supervisory Authorities (ESAs) could do the same, the report said, identifying climate-related risks as the most “obvious”. However, this should only happen once “sufficient expertise on sustainability has been built up to avoid undue scenarios and outcomes”, according to the HLEG.’ (Investment & Pensions Europe)

Managing ESG risks is an integral part of fiduciary duty, and ‘a single set of principles on fiduciary duty and the related concepts of loyalty and prudence should be established in the European Union’ HLEG recommend. Stefanie Pfeifer, chief executive of the Institutional Investors Group on Climate Change (IIGCC), said that “the identification, disclosure and effective management of the huge physical and transition risks posed by climate change” must be at the core of any “functional definition” of fiduciary duty. (I&PE)

Green Bonds Face Litmus Test in European Union: ‘Green bond labels could be a “powerful tool” to help investors choose assets that are reducing greenhouse gas emissions, said Valdis Dombrovskis, the commissioner in charge of financial-services policy. The commission published a report on July 13 urging a “sustainability test” be applied to all future EU financial regulation and policy. (Bloomberg Briefs Sustainable Finance). ‘The EU should clarify what assets and financial products can be defined as sustainable to make sure that investors are confident that such investments have a positive impact’ (Politico Pro ($))

Green finance group calls on EU to stop funding fossil fuels: ‘The upcoming revision of the EU’s multi-annual budget is “a significant opportunity” to increase investments in clean technologies and “explicitly exclude fossil fuels and other unsustainable projects” from public funding, the group wrote in its report. Instead, public money should be geared towards “only supporting renewable energy and energy and resource efficiency”, the report added.’ (EurActiv). In an opinion piece for EurActiv, HLEG member Ingrid Holmes, E3G, writes that the group ‘has real clout’ with a ‘far-reaching set of proposals’ as a ‘result of an intensive and at times passionate six-month quest to establish how the financial system needs to change to make for a sustainable world — and how it can be made fit for purpose.’

Report from expert panel potentially far more ground breaking than TCFD: Responsible Investor ($) quote an observer saying the HLEG “feeds directly and explicitly into policymaking, so there is a clear next step in terms of turning the recommendations into rules.”

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