Brussels (Brussels Morning) The European Commission unveiled its strategy on Tuesday to finance sustainable projects, as it bids to speed up the transition to a greener future. The strategy includes such actions as improving the inclusion of SMEs and consumers so that they can access transition financing plus the development of international standards.
Green retail lending is being encouraged by the Commission as well as increased cooperation with banking institutions —including the European Systemic Risk Board and the European Central Bank (ECB) — in order to identify and monitor sustainability risks.
“The strategy sets out our ambitious roadmap on Sustainable Finance for the years ahead. To achieve our climate targets, we need sustained efforts to ensure more money flows towards a sustainable economy”, Financial Services Commissioner Mairead McGuinness observed.
“The vague promise that the Commission will develop standards and labels for retail banking products such as green loans or green mortgages is an interesting prospect”, Stanilas Jourdan, Executive Director of Positive Money Europe (PME), told Brussels Morning.
Such action would pave the way for the introduction of PME’s proposal of offering discounted interest rates on the ECB’s TLTROs (targeted longer-term refinancing operations) loans to banks. This, for example, would reduce the cost of renovation projects for householders.
The Commission also proposed reviewing existing legislation, in line with the EU Taxonomy, to determine the level of information to be disclosed by financial and non-financial companies when proving the level of sustainability of their activities.
However, the NGO Finance Watch claimed the Commission’s strategy “falls short on ambition” and urged the EU executive to act on transparency issues and to do more about the clarity of the applicable criteria.
“The EU taxonomy must be extended to include social goals and harmful and non-significant impact economic activities to accelerate the transition to an inclusive, just and sustainable economy”, Finance Watch’s James Pieper said
The European Green Bond Standards are also expected to create high-quality voluntary standards for bonds financing sustainable investment, according to the Commission strategy.
Finance Watch, while welcoming the green bonds’ initiative, noted that creating voluntary standards could also defeat the purpose of dealing with the urgency of the climate crisis.
“Experience shows that voluntary initiatives fall short”, Finance Watch stated. “Companies should be obliged to set sustainability targets, including transition and decarbonisation plans to meet those targets”, the NGO observed.
Green bonds are already used to raise financing in sectors such as energy production and distribution, resource-efficient housing, and low-carbon transport infrastructure. Yet, the Commission intends to increase the environmental reach and ambition of the green bond market.
“While the markets for green bonds have seen significant growth in Europe, climate finance needs to scale across all asset classes”, Adam Farkas, Chief Executive of the Association for Financial Markets in Europe (AFME), said. He pointed out that 35% of the necessary funding to meet the Paris Agreement is required from equity, together with 44% from loans and 21% in bonds.
A robust transition framework should include both activities and entities that are already low carbon, Farkas stated. They should also be “forward-looking”, and apply to firms, their assets, and their activities insofar as they demonstrate commitment and potential for transition within scientifically determined thresholds.
EU executive needs to do more
The watchdog Corporate Europe Observatory (CEO) avowed scepticism, citing the Commission’s failure in “dissuading intensive industries from harmful investments”.
In particular, CEO referred to the Commission’s inaction in addressing the need for strict science-based criteria to define environmentally sustainable activities and to end investments in fossil fuels.
Although the Commission announced more tools for the supervision and enforcement of greenwashing activities, CEO maintained that the EU executive should do more.
In a joint letter signed by the Brussels-based watchdog and other NGOs, signatories noted “certain powerful asset managers are still lobbying heavily against the new EU rules” which are “supposed to improve the clarity and transparency” of such products.
In order to ensure that the EU delivers successfully on its climate and environmental commitments, Finance Watch urged policymakers to develop a corporate governance framework that merges incentives and obligations for companies pursuing sustainability.