The European Union said Tuesday that it will leverage banks and markets to funnel hundreds of billions of euros annually into sustainable investments and create the first “climate-neutral continent” by 2050.
The EU’s sustainable financing strategy sets out detailed milestones and measures for the financial sector, businesses and households to achieve the bloc’s climate target.
“Since the scale of investment required is far beyond the capacity of the public sector, the main objective of the sustainable financial framework is to channel private financial flows towards relevant economic activities,” said the EU executive European Commission.
It builds on an EU initiative in 2018 that laid the foundation for the block’s ‘taxonomy’ or classification of truly green investments, and mandatory climate-related disclosures by companies.
As Reuters reported last month, EU states will be asked to assess by June 2023 how their financial markets contribute to achieving the bloc’s climate goals of eliminating its net emissions by mid-century, covering asset managers, funds of pensions, banks and insurers. .
EU authorities and the European Central Bank will calibrate the right pace for the transition by setting intermediate targets for the financial sector.
The EU executive said he will also propose changes to banking rules to make environmental, social and governance (ESG) factors critical to managing risks on his books.
The block’s banking regulator will advance until 2023 its ongoing assessment of capital charges for exposures to environmental and social activities. Insurance capital rules can also be modified in a similar way.
Macroprudential tools, which typically involve sector-wide capital requirements, may also be required for threats to financial stability from climate change.
GREEN WASH CRACKDOWN
“The Commission will consider and evaluate additional measures to enable all relevant financial market participants and advisers to consider the positive and negative sustainability impacts of their investment decisions and the products they advise in a systematic way,” he said.
The EU executive published proposals for voluntary rules for “green” bonds that finance sustainable investments.
The Commission confirmed that it will publish taxonomy rules later this year for agriculture, certain industries and possibly nuclear energy. It will also consider new legislation to support energy sources that could help reduce emissions, including gas-fired power plants, he said.
EU countries are divided on whether gas deserves a green label. Some states say it should be supported to help countries stop polluting coal, while others say labeling a fossil fuel “green” is not credible.
Brussels said it will consider actions to improve comparability and transparency in the corporate ESG rating. Regulators have said the ratings are too opaque and could be contributing to “greenwashing” or companies are exaggerating their green credentials to attract investors.
The strategy seeks to empower people and the bloc’s 23 million small businesses by defining green loans and mortgages by 2022. New accounting rules may also be needed to “recognize and report” climate and environmental risks in financial statements, he said. ($ 1 = 0.8443 euros)
(Additional report by Kate Abnett in Brussels, edited by William Maclean)