ESBG submits positions to EU Commission consultation
>> See ESBG position paper
BRUSSELS, 23 July 2020 – Regulatory actions in the financial sector must prioritise the completion and implementation of regulation developed in the Sustainable Finance Action Plan provided in the EU Green Deal, says a position paper submitted by ESBG to an EU Commission consultation on a renewed sustainable finance strategy.
The association of some 900 savings and retail banks in 21 countries also notes that policymakers need to avoid overlap and misalignment between regulations as well as misalignment in implementation deadlines of interdependent rules. Those rules include the Sustainable Finance Disclosure Regulation , or SFDR, Taxonomy Regulation and some delegated acts, such as for MiFID.
New regulations developed 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.
Widen opportunities for citizens, financial institutions, corporates to boost sustainability to mobilise retail investors, citizens
The European Union should provide the right incentives to investors to achieve the aim of redirecting economic flows to finance sustainable projects. ESBG argues EU policymakers should explore how to provide incentives for small private investors. The role that financial education can play is highly important in this context. The European Union should support the development of more structured actions in the area of financial literacy and sustainability, in our opinion. Doing so can raise awareness and knowledge of sustainable finance among citizens and finance professionals rather than proving detailed guidance through regulatory intervention.
Available data lacking, costly non-financial information
In its response, ESBG also point to the lack of available data and the costly solution of the purchase of non-financial information by data providers. Together with excessive regulation, misalignment between different legislative and regulatory acts regarding definitions and application deadlines, as well as too short application deadlines, these factors delay the integration of sustainability in the financial sector. ESBG calls on the European Commission to build or support a central European ESG free-of-cost – or low-cost – data register.
Actions to spur social commitment, sustainable transition financing
The EU legal framework should promote social aspects of sustainability in banking according to United Nations Sustainable Development Goals. Acknowledge social bonds and other financial instruments to achieve social aims as a means to a sustainable society in the same way as green bonds. Moreover, ESBG sees further actions needed to enable the financing of the sustainability transition. Firstly, respect the principle of proportionality. Second, respect the EU Better Regulation Agenda. That means introduce a “CSR-Test" within the impact assessment procedure. Third, development an EU Social Taxonomy.
Labels: Support for voluntary path
Need also exists for regulatory intervention to create a label. ESBG members support the development of a voluntary label to improve transparency for consumers on sustainability. Regulators should firstly observe market developments, however, and make sure that an EU standard will not complicate future harmonisation. It is also important that such a label underpins an effective transition of the economy to a carbon-neutral society and sustainable development. Labels should not only apply to products that are strictly low carbon but also support transition and enabling activities to promote a faster, broader, and more effective transition. Both low-carbon activities, transition, and enabling activities should be included in the scope of the EU ecolabel.
Green securitisation has an important role to play as it allows the aggregation of small-scale projects that otherwise would not reach institutional investors. The market still lacks depth and liquidity, despite regulatory efforts made so far to bring a sense of confidence to investors to relaunch the securitisation market through building a simple, transparent, and standard (STS) securitisation framework. One specific treatment of green securitisations, any framework that could be developed should try to avoid overburden and be proportionate to fulfil the regulatory aim. If rules constraints prove excessive, this could harm the proper development of a market for these instruments, which are key to free up capital to unleash more loans to the real economy – in particular green loans – and to scale up small projects for institutional investors.