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by Axelle Blanchard

New EU renewed sustainable finance strategy: challenges and opportunities

As the EU’s new strategy for a sustainable financial system is debated in Brussels, CDSB’s Policy Manager Axelle Blanchard identifies some challenges and opportunities of this important initiative.

On 8 April, the European Commission launched a 14-week consultation to gather inputs for the design of a renewed sustainable finance strategy. Such strategy, whose publication is expected in the Autumn, is a follow up to the Commission Action Plan on financing sustainable growth and a milestone in the implementation of the European Green Deal as it will provide the roadmap for increasing private investment in sustainable activities.   

While going through the more than 100 questions of the consultation, one of the things that strikes me most is the progression compared to the previous Action Plan, including:

  • A greater sense of urgency, with the mention of “climate and biodiversity crisis tipping points” and the need to make progress within “the next 5-10 years”; 
  • A higher level of ambition, and the will to address a lot of topics and stakeholders’ perspectives; and 
  • A will to put the initiative into the global picture, with references to the current COVID-19 crisis and the “need to strengthen the sustainability and resilience of our societies and the ways in which our economies function.” The consultation also refers to important pieces of analysis such as the UNEP’s Frontiers 2016 Report on Emerging Issues of Environmental Concerns. 

The new strategy will aim to focus on 3 areas: 

  1. Strengthening the foundations for sustainable investment by creating an appropriate framework, with appropriate tools and structures;
  2. Increased opportunities to have a positive impact on sustainability for financial institutions, corporates and citizens; and 
  3. Management and integration of climate and environmental matters into financial institutions and the financial system. 

While details on each of these areas will need further refining based on the results of the consultation, some challenges and opportunities around the upcoming strategy can already be underlined. 

Challenges 

1. Increase the level of ambition without creating confusion between issues and stakeholders’ needs.

There is an overall good intention to consult and make all stakeholders from citizens to companies and states involved in the design of the strategy. 

Nonetheless, that should not lead to the development of too many objectives which might be hard to prioritise, monitor and enforce over time. There is also the need to clearly identify the targeted stakeholders for each of the proposals under the strategy. 

It is therefore important to: 

  • Structure and prioritise actions to answer different stakeholders’ needs and ensure proper implementation and enforcement of existing and upcoming requirements; and
  • Clarify scopes of initiatives and terminologies (e.g. there are not yet clear definitions when it comes to materiality, adverse climate and environmental impacts, or due diligence policies).

2. Keep the momentum on Climate action.

As a result of the current COVID-19 crisis, we might expect some delay in the implementation of the European Green Deal, given the recent postponement of international climate and biodiversity conferences such as the UN Biodiversity conference (CBD COP 15) and COP26. 

In this context, the first question within the consultation on the pace of policy actions needed to tackle the climate-related and environmental challenges becomes more pertinent than ever. The consultation offers various response options and CDSB supports the response that “major additional policy actions are needed to accelerate the systematic sustainability transition of the EU financial sector” as outlined within the consultation. 

Opportunities 

1. Have a deeper look at environmental issues and enshrine environmental (including climate) issues in all business activities. 

The intended level of ambition of the upcoming renewed strategy on sustainable finance can be seen to address environmental issues beyond climate change when asking about “the growing negative impact of biodiversity loss on companies’ profitability and long-term prospects” and the actions that should be taken to address biodiversity loss. This intention echoes the UN’s Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES) findings from last year on the connections between climate change and the biodiversity and ecosystem crises as well as the need to address the socio-economic impacts of climate change in-depth.

The consultation also addresses several topics where further policy actions are required to address the consequences and risks of climate change and biodiversity loss such as natural capital accounting or corporate governance issues. 

Further actions in these fields will also ensure that all stakeholders have the relevant tools to integrate environmental, including climate, perspectives in their daily business activities.

    2. Create convergences in international debates on how to handle environmental issues and improve economic resilience to climate and wider environmental impacts.

    Beyond the establishment of the International Platform for Sustainable Finance, an intergovernmental forum of discussion established by the European Commission in October 2019, this renewed strategy is also a good opportunity to create convergences between the debates happening at the international level across various forums such as the Network for Greening the Financial System, or the recently established Basel Committee on Banking Supervision taskforce on climate-related financial risks. As we see an increased number of initiatives and actions happening in parallel, there is a need to reflect and introduce more consistency and convergence between these various forums. There is in the consultation a question (number 12) around the governance of the sustainable finance agenda, which might be a means to address this issue. 

      The renewed strategy for sustainable finance:  a tool to foster a green recovery? 

      Overall, this consultation (open until 15 July) seems promising to keep sustainable finance as a priority in the upcoming months.

      The European Commission has indicated that the strategy should be adopted by the end of the year. 

      As discussions on recovery packages are starting to scale up after the agreement by European Finance ministers on a €500 billion package to support Member States, companies and workers in the coronavirus crisis, a green recovery alliance was launched in the European Parliament on 14 April. This initiative gathers European Parliament members, CEOs from large corporations as well as business associations, NGOs and think tanks representatives. 

      Signatories are committed to support “stimulus transformation plans” that put first the fight against climate change and biodiversity loss in the upcoming economic policies within “an economy built around Green principles.” 

      As the situation evolves, only time will tell if the European Commission’s commitment to deliver a more ambitious strategy becomes a reality. 

      Please do not hesitate to reach out to Axelle Blanchard, Policy Manager to engage further on the renewed strategy for sustainable finance.