Regulatory Update: European Commission consultation on renewed sustainable finance strategy9 April 2020
The European Commission has released a consultation on its renewed sustainable finance strategy. In its introduction, the Commission links the current Covid-19 outbreak with the need to strengthen sustainability and the resilience of societies and economies, signalling that long-term sustainability goals remain a priority in the current crisis.
The consultation is divided into two sections. The first section is addressed to all stakeholders, including citizens, with questions on how the financial sector can become more sustainable. The second section is targeted at experts and sets out more technical and strategic questions on the future of sustainable finance. It solicits input on a wide range of areas and potential initiatives under
three broad headings:
1. Strengthening the foundations for sustainable finance – this chapter addresses the supporting infrastructure necessary to deliver on sustainable finance, seeking input on aspects such as company reporting and transparency; sustainability research and ratings; definitions, standards and labels; capital markets infrastructure; and corporate governance. The Commission asks whether a mandatory share of variable remuneration should be linked to non-financial performance for corporates and financial institutions. There is also a question about whether passive index investing could lower the incentives to participate in corporate governance matters or engage with companies regarding their long-term strategies.
2. Increasing opportunities for citizens, financial institutions and corporates to enhance sustainability – this chapter seeks input on areas such as mobilising retail investors; measurement/assessment of the positive impact of sustainable finance; green securitisation; using digital tools to support sustainable finance; incentives to scale up sustainable finance; promoting cross-border sustainable investment; and promoting sustainable finance globally.
3. Reducing and managing climate and environmental risks – this chapter covers issues such as a so-called ‘brown taxonomy’ of harmful activities; financial stability risk and the prudential framework as well as adapting rules on fiduciary duties; integration of ESG into credit ratings; natural capital accounting or ‘environmental footprinting’; and improving resilience to adverse climate and environmental impacts.
The response timeframe for the consultation is 15 July 2020. The Commission is also currently consulting on the review of the Non-Financial Reporting Directive (NFRD).
Irish Funds will be responding to both of these consultations and has created three ESG Workstreams (Policy, Legal & Regulatory; Servicing, Innovation & Data; and Investment Management) to supplement our existing ESG Working Group and support industry efforts on the sustainable finance agenda. The ESG Workstreams will lead industry planning and preparation for the implementation of the EU sustainable finance framework and provide expert input on consultations and issues arising.