WSBI ESBG

Sustainable Finance Position

March 2022

Proposed Solutions and Actions

Regulatory actions in the financial sector must prioritize the completion and implementation of the regulation developed in the 2018 Sustainable Finance Action Plan and what is provided in the EU Green Deal and the upcoming Renewed Sustainable Finance Strategy. Overlaps and misalignments between regulations as well as misalignments in implementation deadlines of interdependent regulations should be avoided. New regulations must be targeted to specific objectives – to address market failures or observed deficiencies proportionate to the regulatory objective avoid excessive burdens for entities – and must follow the materiality principle.

The EU legal framework should furthermore promote social aspects of sustainability in banking according to United Nations Sustainable Development Goals and the European Union should consider the further development of an EU Taxonomy including social objectives.
To enhance data availability and comparability, ESBG calls on the European Commission to build or support a central European ESG free-of-cost – or low-cost – data register. The European Union should provide the right incentives to investors to achieve the aim of redirecting economic flows to finance sustainable projects. EU policymakers should explore how to provide incentives for small private investors. The role that financial education can play is very important in this context.

The European Union should support the development of more structured actions in the area of financial literacy and sustainability to raise awareness and knowledge of sustainable finance among citizens and finance professionals rather than proving detailed guidance through regulatory intervention.

Identified Concerns​

Although ESBG members recognize the clear need for targeted regulatory intervention to foster the transition to a climate-neutral economy and reorient investment flows to achieve this objective, we would like to point out the risks of excessive regulation: The integration of sustainability in the financial sector is, in ESBG’s view, also delayed by the lack of available data; the costly purchase of non-financial information by data providers; excessive regulation, misalignment between different legislative and regulatory acts regarding definitions and application deadlines, and too short application deadlines.

​​Excessive regulation could put the European financial sector at a disadvantage vis-à-vis other jurisdictions, such as the US, both in the banking market and in the capital markets;

  • Excessive regulation reduces the attractiveness of public markets;
  • ​Excessive regulation puts us at a disadvantage against technological competitors that do not have all this bureaucratic burden;
  • ​Excessive regulation adds a regulatory burden and direct and indirect costs that impact upward the cost of capital, at a time when it needs to be reduced to revive the economy. ​

​The integration of sustainability in the financial sector is, in ESBG’s view, also delayed by the lack of available data; the costly purchase of non-financial information by data providers; excessive regulation, misalignment between different legislative and regulatory acts regarding definitions and application deadlines, and too short application deadlines.​​

Why Policymakers should Act

The European Green Deal and the recovery from the economic consequences of the COVID-19 crisis will significantly increase the investment efforts needed across all sectors, meaning that financing frameworks, both public and private, must support this overall policy direction. A Renewed Sustainable Finance Strategy aims to provide the policy tools to ensure that the financial systems genuinely support the transition of businesses towards sustainability in a context of recovery. The importance of a Renewed Sustainable Finance Strategy is highlighted through the ongoing COVID-19 crisis, which underscores some of the subtle links and risks associated with human activity, climate change, and biodiversity loss, as well as the subsequently critical need to strengthen the sustainability and resilience of our societies and economies. It will be hugely important that the Renewed Sustainable Finance Strategy is well-designed, clear, and takes into account the considerations of stakeholders, such as savings and retail banks, whose business model is conscious of the needs of society, for more than 200 years. A smart strategy and appropriate follow-up actions will be of great value.

Background​​

On 11 December 2019, the Commission presented its EU Green Deal, announcing an ambitious package of measures for a just and inclusive transition towards achieving climate neutrality by 2050. As the EU moves towards climate-neutrality and steps up its fight against environmental degradation, the financial and industrial sectors will undergo a large-scale transformation too. Although the financial sector has already made considerable progress, its transition, in the opinion of many, is not fast enough to achieve the climate targets of 2030 and 2050.
Moreover, the COVID-19 pandemic has shown the critical need to strengthen the sustainability and resilience of our societies and the ways in which our economies function. In the next years, a more sustainable financial system will be essential to ensure a green recovery from the crisis and support the prevention of other pandemics in the future.

For all of these reasons, the Green Deal announced a Renewed Sustainable Finance Strategy to be published at the end of 2020. The renewed strategy will build on the 10 actions put forward in the European Commission’s initial 2018 Action Plan on Financing Sustainable Growth, which laid down the foundations for channelling private capital towards sustainable investments and will shift the focus to the real economy and corporates, as well as to public authorities and citizens to give everyone the necessary tools to transition from brown to green. The Renewed Sustainable Finance Strategy will predominantly focus on three areas:

  • Strengthening the foundations for sustainable investment by creating an enabling framework, with appropriate tools and structures.
  • Increased opportunities to have a positive impact on sustainability for citizens, financial institutions, and corporates.
  • Climate and environmental risks will need to be fully managed and integrated into financial institutions and the financial system as a ​whole, while ensuring social risks are duly taken into account where relevant

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