IIF Authors

Status: Will be live at 07/16/2020 09:35

IIF Response to EC Consultation on a Renewed Sustainable Finance Strategy

On July 15, the IIF submitted a high-level response to the European Commission’s public consultation on the development of a Renewed Sustainable Finance Strategy (RSFS). Announced in January 2020 under the European Green Deal Investment Plan, the RSFS will build on the 10 actions put forward in the European Commission’s initial 2018 Action Plan on Financing Sustainable Growth – which laid the ground work for the development of several landmark instruments, including the EU taxonomy for sustainable finance.

The IIF welcomes the ambition of the EC to formulate a RSFS, which will set the groundwork for future measures to rapidly scale up flows of sustainable finance in support of a green recovery. Recognizing the breadth of the consultation, and the significance of EU policy and regulatory developments for the global sustainable finance agenda, the IIF engaged with members of our Sustainable Finance Working Group to formulate a response focusing on topics of international relevance. The response is organized into three main categories:

  1. Ensuring the existing EU Sustainable Finance agenda is complete and coherent
  2. Broadening and deepening the EU Sustainable Finance agenda
  3. Strengthening international coordination and alignment

Key messages and positions put forward in the consultation include:

  • Disclosure by corporates: We support the proposal to develop a ‘common, publicly accessible, free-of-cost environmental data space for companies’ ESG information’ (hereafter referred to as ‘ESG data repository’).
  • Regulation of ESG service providers: The EC should reflect on where harmonization may be required across the ESG ratings, analytics, and data provider landscape, and which segments are naturally divergent. Considering current challenges, contemplated regulatory action of ESG service providers should aim to both support consistency while ensuring strong competition.
  • Disclosure of portfolio warming metrics by financial institutions: Contemplated requirements on institutional investors and credit institutions to estimate and disclose portfolio warming metrics are likely to be premature, considering a lack of standardized methods, data gaps, unclear objectives, and potential for unintended consequences and perverse outcomes.
  • Use of prudential tools: More evidence and analysis are needed to make clear judgements on the use of prudential tools to stimulate green investment, including potential actions implemented on the basis of perceived risk differentials between green vs. non-green assets.
  • Consideration of biodiversity: We strongly support the consideration of biodiversity loss in the context of future EC work on sustainable finance, considering the foundational significance of biodiversity for the functioning of ecosystems upon which all economies rely.
  • Development of a taxonomy for economic activities with negative environmental impacts: We would not encourage the EC to pursue development of a so-called ‘brown taxonomy’ at present, considering a lack of experience with implementation of the green taxonomy, unclear objectives of developing and additional taxonomy, and the need to focus on more pressing ESG issues.
  • Development of standards for sustainability-linked products: the EC to allow time for a monitoring period how these relatively new market solutions are working, and adapting in a self-regulatory way, before intervening with additional regulation.
  • Priorities for international coordination and harmonization of policy instruments: We believe that the EC should work through formal global channels to to promote harmonization of key evolving agendas in the sustainable finance space, including ESG disclosure standards, climate-related scenario analysis exercises, taxonomies and definitions.
  • Broader coordination priorities: We would propose that the EC consider a range of innovative actions to facilitate global coordination of the private sector to deliver on the goals of the Paris Agreement and the SDGs.