ESBG says their strength lies in experience with long-term goals
>> See WSBI-ESBG position on sustainable finance (Updated July 2019)
Brussels, 19 September 2017 – Local banks are well placed to unleash sustainable finance due to their experience with long-term goals, ESBG argues in its response to the European Commission High Level Expert Group (HLEG) questionnaire on its sustainable finance interim report. The report rightly calls for sound economic policy underpinned by coherent financial regulation that allows for long-term investments by both governments and private investors.
Local banks hand in hand with SMEs
Locally focused savings and retail banks have a specific relationship with SMEs, potentially the main vectors for sustainable development. Crucial in providing SME financing, ESBG members have an SME lending volume – stock at the end of 2016 – equalling €500 billion, 35% of the EU market share and around 15% of ESBG's lending portfolio. Evidence shows that SMEs are still turning to banks first for their business loans over other sources of financing. Bank lending remains the favourite source of SME financing for 50% of SMEs, as banks offer lower transaction costs, lower disclosure obligations, and the possibility to acquire small amounts of money. Banks provide 75% of outstanding SME funding in Europe.
SMEs are key as the main engines of jobs creation. In 2015, SMEs accounted for 99.8% of all enterprises in the non-financial EU business sector, employing almost 90 million people – 67% of total employment – and generated 58% of the sector's added value.
ESBG also notes that the HLEG should look at how best to re-strengthen the idea of relationship banking versus transaction-based approaches to foster sustainable development through SMEs and private households.
ESBG's recommendations for the HLEG
Financial regulation should be modernised and open to innovation in order to promote finance supportive of UN SDGs.
The market should be encouraged to develop a long-term sustainability mind-set through targeted incentives.
Sustainability should be approached broadly, including economic and social development.
Material ESG factors should be integrated into the national definitions of fiduciary duties.
Banks should aim for a fair carbon price in order to contribute to achieving the COP21 2°C target.
Products such as the green certificate of deposits should be included in an EU taxonomy for sustainable assets and financial products.
As a complement to the international Climate Bonds Initiative with which the EU standards should be aligned, a label should be created for outstanding financial companies in sustainability, which would be preferable to a label for financial instruments.
Already-existing successful systems should be promoted and enlarged as it was the case with KfW-ELENA.
As it is crucial that green investments are promoted at local level, local authorities, SMEs, private customers and local banks should work together in developing ideas for sustainable projects.
Experts from savings and retail banks should systematically be integrated into high-level groups.
Main barriers to tackle
ESBG argues three main barriers to tackle that require policy response, which are:
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ESBG – The Voice of Savings and Retail Banking in Europe
ESBG brings together nearly 1000 savings and retail banks in 20 European countries that believe in a common identity for European policies. ESBG members represent one of the largest European retail banking networks, comprising one-third of the retail banking market in Europe, with 190 million customers, more than 60,000 outlets, total assets of €7.1 trillion, non-bank deposits of €3.5 trillion, and non-bank loans of €3.7 trillion. ESBG members come together to agree on and promote common positions on relevant regulatory or supervisory matters. Learn more about ESBG at www.wsbi-esbg.org