BRUSSELS, 7 March 2018
The following piece is extract from recently published ESBG publication "Together for a growing and more integrated Europe"
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Europe faces financially, economically and socially challenging times. Given this backdrop, nourishing growth and jobs in Europe comes from targeted funding for SMEs and microenterprises. In fact, 75% of European SMEs prefer loans by credit institutions like savings and retail banks as the primary source for external funding. Finding the best way to finance the real economy – and specially SMEs – remains a priority for Europeans and EU policymakers alike.
This is where savings and retail banks in Europe can help. Backed by their long-standing experience in the regions, their wide network and proximity to the local companies enables them to build an irreplaceable knowledge and trustworthy relationships.
It also puts savings and retail banks in an ideally placed position to help empower the economy and boost sustainable, inclusive and smart growth by granting loans to SMEs. Stimulating bank lending to SMEs and avoiding unnecessary regulatory obstacles should be a policy priority.
On the Capital Markets Union, ESBG and its members see a need for financing from capital markets and supports the EU project. CMU is a supplementary vehicle, however, not a primary path to support SME financing. Capital markets can complement, but not replace, the role of bank lending, which remains in high demand amongst SMEs due to its non-complex nature. Substituting bank lending for capital markets works against the demands of SME financing needs. A policy of complementarity remains the best way forward to create a stronger and more competitive European Union.
Climate change is urgent. The environment is reeling. To address both, European decision-makers have rightly set the aim to channel more funds into sustainable projects. Overall, ESBG warmly welcomes the objective to channel more funds into sustainable projects. This should be done by giving true incentives to the real economy, private households and SMEs to make sustainable solutions attractive at local, national and global levels. European policy-makers have adeptly pointed out that widespread short-termism of financial markets contradicts the concept of sustainability and a long-term approach needs to be taken.
A long-term mindset also forms the cornerstone of Europe’s savings and retail banks’ business model. That mindset explains why ESBG members are highly active in sustainable finance. They provide the financial means to private households, SMEs and local authorities financing for low-hanging fruits such as renewable energy, energy efficiency in housing, production and building renovation. Banking institutions must fulfil their functions in this respect.
Unproportionate regulatory and administrative burdens that hinder access to finance should be reduced in the existing regulatory framework and avoided in any future legislation on sustainable finance in the European Union. By weaving in proportionality, rules on sustainable finance can achieve the aims of sustainable and inclusive growth.
In this regard, we would like to point out that retail banking activities are fundamentally different from wholesale banking activities regardless of size. In addition, the differences between banking, asset management and insurance have to be fully considered and taken into account. ESBG therefore urges policy-makers to design sustainable finance policies adapted to the specificities of retail banking and supportive of a diversified banking sector. ESBG also encourages them to adopt legislative steps in the right order. It is important to underline that unnecessary administrative burdens should be avoided as they would be counter-productive and hinder the market for ESG products.
Legislative initiatives should always include cost-benefit and impact analyses, pursuant to the better regulation principles, so as to ascertain that greening the economy is fully coherent with the social aims supported by retail banks, sustaining local communities and SMEs, which is most crucial for innovation and job creation.
As observed by the High-Level Expert Group (HLEG), appointed by the Commission, the transformation of the EU economy at the end of the day must take place in the real economy itself. ESBG menber banks are willing to support the endeavour, but they are not the decisive lever for a transformation to more sustainability. It must be clear that this only can happen if fundamental behavioural patterns by people within the real economy change. That means in private households as well as public and private enterprises. EU policy makers will have to create awareness of the needs, enabling regulation and giving incentives for the real economy, private households and individuals, and SMEs to go for sustainable options.
A gradual shift towards a sustainable future should be embraced throughout the European initiatives on this topic with a clear-cut framework able to create an orderly transition, avoiding counterproductive complexity. The EU’s sustainable finance package should also provide for a common understanding of what is sustainable and promote increased transparency to the benefit of the consumer.
But , sustainable means more than “green”. In its Action Plan on Financing Sustainable Growth, the European Commission rightly points out that the concept of sustainability rests on environmental and social considerations alike. Social considerations may refer to issues such as inequality, inclusiveness, investment in human capital and communities. It may also include access to finance, areas where savings banks traditionally are particularly strong, contributing to opening-up local development potentials and fostering social cohesion in the communities.
It is of utmost importance to highlight the social dimension of sustainable finance. European institutions should also make sure that regulation around sustainability always takes into account the social impact of the policy measures. One must avoid policy side effects that might, for example, restrict access to financial services for both private households and for enterprises, or cause unwanted social effects. Whatever is decided for Europe must be helpful in achieving the objectives.