Making financial sector a powerful actor in fighting climate change
On May 24, 2018, the Commission delivered the first concrete actions to enable the EU financial sector to lead the way to a greener and cleaner economy. The proposals confirm Europe's commitment to be the global leader in fighting climate change and implement the Paris Agreement.
More investments will be channeled into sustainable activities due to new rules that define the criteria to determine whether an economic activity is environmentally-sustainable. This harmonised EU-wide classification system – or ‘taxonomy' - will particularly help investors who often do not have enough information about what is green and what is not.
All financial entities that manage investments on behalf of their clients or beneficiaries will now have to inform them about how their activities are impacting the planet or their local environment. In so doing, these rules will give more choice to investors who wish to invest in the future of the planet while earning a return.
Key features of the measures
- A unified EU classification system ('taxonomy'): The proposal sets harmonised criteria for determining whether an economic activity is environmentally-sustainable.
- Investors' duties and disclosures: The proposed Regulation will introduce consistency and clarity on how institutional investors, such as asset managers, insurance companies, pension funds, or investment advisors should integrate environmental, social and governance (ESG) factors in their investment decision-making process. Exact requirements will be further specified through Delegated Acts, which will be adopted by the Commission at a later stage. In addition, those asset managers and institutional investors would have to demonstrate how their investments are aligned with ESG objectives and disclose how they comply with these duties.
- Low-carbon benchmarks: The proposed rules will create a new category of benchmarks, comprising the low-carbon benchmark or "decarbonised" version of standard indices and the positive-carbon impact benchmarks.
- Better to advice to clients on sustainability: The Commission has launched a consultation to assess how best to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients. The aim is to amend Delegated Acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive. Deadline to participate in both the consultations is 21 June 2018.