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Vulcan Insight | EU proposes new Sustainable Finance Strategy

On Tuesday, the European Commission presented its Sustainable Finance Strategy to make the financial system more sustainable. At the same time, the Commission also proposed a new European Green Bond Standard to “create a high-quality voluntary standard for bonds financing sustainable investment.” According to Commissioner in charge of Financial Services, Financial Stability, and Capital Markets Union, Mairead McGuinness, the new strategy will significantly contribute “investment to green the economy and create a more inclusive society.”

The Sustainable Finance Strategy comes a week before the Commission is set to adopt its landmark, 14 legislative proposal strong “Fit for 55” climate, energy and environment package, and is the institution’s latest “Green Deal” action on tackling climate change.

In doing so, it builds on the goals set out in the 2018 Action Plan on financing sustainable growth and includes six sets of concrete actions across four broad areas, namely transition finance, inclusiveness, resilience and contribution of the financial system, as well as the EU’s broader global ambitions.

Specifically, the six concrete actions the Commission proposed include extending the existing sustainable finance toolbox to facilitate access to transition finance; improving the inclusiveness of SMEs, as well as consumers, by giving them the right tools and incentives to access transition finance; enhancing the resilience of the economic and financial system to sustainability risks; increasing the contribution of the financial sector to achieve sustainability goals; ensuring the integrity of the EU’s financial system and monitor its orderly transition to the achievement of its sustainability goals; the development of international sustainable finance initiatives and standards, and supporting EU’s partner countries in the clean transition.

Regarding the newly developed European Green Bond Standard, the Commission’s proposal aims to create a “high-quality voluntary standard available to all issuers (private and sovereigns) to help financing sustainable investments.” While the Commission recognises that green bonds are already used in many sectors, it sees that there continue to be divergences and sees its proposed standardisation as a “potential for scaling up” green investments across the EU while protecting investors from so-called greenwashing.

Under the proposal, the EU Green Bond Standard will be open to investors inside and outside of the EU, with the funds raised by the bonds fully allocated to green projects aligned with the EU’s green taxonomy.

The Commission also foresees strong reporting obligations to ensure full transparency to all market participants, and mandates that all EU green bonds must be checked by an external reviewer to ensure regulatory compliance. Specific, limited flexibility is foreseen only for sovereign issuers.

The Commission’s legislative proposal will now be submitted to the European Parliament and the Council of the EU for amendments and negotiations.

Compliments of Vulcan Consulting – a member of the EACCNY.