The European Commission has today published its Renewed Sustainable Finance strategy, which looks to provide the policy tools needed to ensure the financial system can support businesses in their transition toward sustainability, in the context of the Covid-19 recovery.
Commenting on the renewed strategy, Adam Farkas, Chief Executive of the Association for Financial Markets in Europe (AFME), said: “Europe’s leadership on sustainable finance has given rise to several ambitious and comprehensive regulatory proposals. Now, the next stages of the sustainable finance agenda will be critical to mobilise private investment on the scale needed to meet the EU’s sustainability objectives.”
Indeed, the European Commission’s renewed strategy contributes to the objectives of the European green deal investment plan, through measures that facilitate sustainable investments by private investors and the public sector. It builds also on previous initiatives and reports, such as the Commission’s 2018 action plan on financing sustainable growth and the reports of the Technical Expert Group on Sustainable Finance (TEG).
“A broader, more flexible approach to classifying transition activities would go a long way to helping accelerate Europe’s pathway to achieving net-zero carbon emissions by 2050,” adds Farkas. “The recognition in the Renewed Strategy that the current EU Taxonomy framework could better recognise investments for intermediary steps on the pathway towards sustainability is extremely helpful. A robust transition framework should include both activities and entities that are already low carbon, but also be forward-looking and include firms, their assets, and their activities that demonstrate the commitment and potential for transition within scientifically determined thresholds.”
Going forward, capital markets will need to play a central role in the green transition. According to AFME, 35% of the funding needed to meet the Paris Agreement is required from equity, alongside 44% from loans and 21% in bonds.
While the markets for green bonds have seen significant growth in Europe, climate finance needs to scale across all asset classes.