Europe Taking on the New Sustainable Finance Strategy

The European Commission will shortly unveil a renewed Sustainable Finance Strategy. This has the potential to be a roadmap for mobilising investment for the European Green Deal vision of a modern, resource-efficient, and competitive economy with no place and no person left behind.

FREMONT, CA:The new strategy should address the scope and complexity of the EU sustainable finance agenda. A strong social dimension that addresses inequities and future resilience, as well as an international dimension in which Europe leads and moulds multilateral financial system reforms, are among the top priorities. Greening public finance within the context of a green recovery is another. A strategic refresh is now necessary due to significant discussions and developments that occurred during the nine-month delay before the plan was published.

The G7 and G20 have sustainable finance on their agendas. The financial system reforms that Europe had envisioned are now a reality, but unless it can work out win-win agreements with important partners, it will lose its position as the global leader in sustainable finance. The idea of Europe employing its sustainable finance mechanisms to direct its green recovery expenditure was opposed by industry incumbents and several Member States. Additionally, they worked to weaken the taxonomy by designating biofuels, natural gas, and nuclear power as flashpoints. To wait for assurances about the technical integrity of the taxonomy, members of the independent committee charged with overseeing it paused their work.

Some of E3September G's suggestions are already a reality as the European sustainable finance agenda has advanced recently. Although a related Sustainable Corporate Governance proposal has been delayed, the Corporate Sustainability Reporting Directive will require businesses to disclose climate-related risks and transition plans. The European supervisory authorities have continued to progress on climate risk supervision, while the European Central Bank has made quick progress with an economy-wide climate stress test and will soon disclose its full results.

A significant focus in finance is the social component. Although efforts are being made to develop a social taxonomy, there haven't been many other initiatives to address equity, inclusivity, or climate resilience on the current agenda. Extreme weather has become more common, and the epidemic has brought attention to and widened the economic gaps between and among Member States. Therefore, a strategy for mobilising sustainable finance at scale needs to take into account who pays and who gains.

Another top goal will be environmental integrity. Intense disagreements over the taxonomy's completion and use in the public realm have the potential to harm the EU's aspirations and standing. Future reforms must address the issues that the stakeholders mentioned and support the funding of transitional operations. To attain climate neutrality and the aims of the Paris Agreement, these transitional activities must be defined in the context of the decarbonization trajectory. The alternative involves taking a chance to encourage investment in future stranded assets and jeopardising the EU's standing as a global leader in climate change.

E3G anticipates that significant efforts to green the financial system will continue, building on recent advancements and enlisting the assistance of the European prudential authorities. To ultimately establish worldwide alignment, the EU should maintain cooperation and an open conversation with other jurisdictions, particularly the US and UK.