EU High-Level Expert Group on Sustainable Finance Established by the European Commission Secretariat within the Directorate General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) 2017 1/16
The global context and need for Sustainable Finance GLOBAL CONSENSUS on the need to address climate change and to support transition to a low-carbon, more resource-efficient and sustainable economy INTERNATIONAL POLICY FRAMEWORKS such as Paris COP21 agreement, EU 2030 Climate and Energy Goals, UN 2030 Sustainable Development Goals which have set ambitious objectives for significant, longer-term investments in sustainable projects STRONG EUROPEAN COMMITMENT to Sustainable Investment and Finance, at the heart of the Capital Markets Union Reform: mobilizing capital in Europe for growth and development; building deeper and more integrated capital markets for all 28 Member States of the EU 2/16 2
Sustainable Finance encompasses multiple definitions and targets NARROW DEFINITION BROAD DEFINITION BROADEST DEFINITION • ESG : Combining strong • • Smart, inclusive growth A system that is not only financial performance, temporarily stable but that for all financial stability and focuses systematically and advancements in social, • permanently on contributing Investing in human capital environmental and to the societal challenges and harvesting natural governance practices resources to meet the needs of • current and future Reflecting and integrating • Green Finance : that all challenges are long- generations investments towards term , aligned with human environmental friendly, low- scales/projects and with carbon and 2°C target natural resources lifespan and projects replenishment rates 3/16 3
Shared vision and understanding of Sustainable Finance : what is at stake? Vision for a sustainable financial system Among the topics to be tackled: • • Long-term horizons Capital Allocation • • Sustainable banking Cost of capital reflective of externalities • • Governance and Consistency of intent across investment accountability chain • Risk Management Examples of what is missing in our current financial system • Aligning financial regulation with sustainable development goals • Time misalignments • Incentive structure and time horizons of intermediaries in the EU investor market • ESG vs sustainable investing • Cultural aspects 4/16 4
The Expert Group on Sustainable Finance • Established by the European Commission (lead: Directorate General FISMA) • Multidisciplinary group to propose reform of the European financial and 20 high-level regulatory framework experts • Deep knowledge and understanding of financial markets and regulation • Commitment to new challenges: climate, environment, sustainability • Civil society • Civil society: NGOs and think-tanks • Finance • Finance: Insurers, Asset Managers, Banks • Academia • Academia: Economics and Finance • 9 observers from International and European institutions Mandate Objectives Help develop an EU strategy on sustainable finance that mobilises 1 capital market resources for sustainable investments while • Achieve an EU Sustainable Financial preserving financial market stability System and Economy • Mobilize finance for sustainable investments while maintaining Identify areas of reform of the EU financial policy framework to 2 financial stability of institutions increase green and sustainable finance exposed to carbon-intensive sectors and assets • Commit to COP21 and EU 2030 goals Propose clear and operational policy recommendations on how to • Stay below 2°C target 3 better align the financial system with EU policies in support of sustainable growth and investments 5/16 5
Expert Group on Sustainable Finance: Timeline 2017 2017 July 18, 2017 Dec 2017 Stakeholder Meeting Stakeholder Meeting Jan March April June Sept Oct Nov EGSF EGSF EGSF EGSF EGSF EGSF EGSF Meeting Meeting Meeting Meeting Meeting Meeting Meeting Interim Final Report Report • • Key Regulation challenges Policy actions and • Case studies recommendations • • Open discussions Short, mid- and longer- • Policy considerations term horizons 6/16 6
Patronage of the European Group on Sustainable Finance “We are committed to promoting sustainable finance. The members of our High-Level Expert Group will help us hardwire sustainability into EU financial policy. They will ensure our approach to sustainable finance is ambitious and at the forefront of innovation. ” Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue, Financial Stability, Financial Services and Capital Markets Union “The finance sector has a critical role to play in re-orienting capital towards more sustainable technologies and uses, and financing Europe's energy transition needs. [ … ] This is crucial for jobs, growth and competitiveness. The Expert Group report has the potential to make a landmark contribution to shaping European policy. ” Jyrki Katainen, Vice-President for Jobs, Growth, Investment and Competitiveness “ The task of the High-Level Expert Group is not simple: it is politically charged and technically complex. [ … ] Among the core issues is how to integrate sustainability considerations while not manipulating the risk signal of prudential rules. There is also an issue of timing adequacy between risks settlements and financial regulations adaptation. ” Olivier Guersent, Director-General of DG FISMA 7/16 7
Structure of the Expert Group on Sustainable Finance (EGSF) MEMBERS AMC Strategy Polish Bank Association Finance Finland OBSERVERS 8/16 8
Expert Group Composition: Members and Observers MEMBERS OBSERVERS LTIs & Asset Managers • European Systemic Risk Board (ESRB) • Alecta – Pension Fund • London Stock Exchange • European Environment Agency (EEA) • APG Asset Management • Luxembourg Stock Exchange • AXA • Mirova – Natixis Asset • UN Principles for Responsible Investment • Aviva Investors Management (UNPRI) • Deka Investment GmBH • Polish Bank Association • Federation of Fininish Financial • European Association of Long-Term Services Investors (ELTI) • United Nations Environment Programme (UNEP) Non-Governmental Organizations, Academic & Think- Tanks • Single Resolution Board (SRB) • 2° Investing Initiative • European Investment Bank (EIB) • Cambridge Institute for Sustainability Leadership • Climate Bonds Initiative (CBI) • International Capital Markets Association • EUROSIF (ICMA) • E3G – Third Generation Environmentalism • SOMO – Centre for Research on Multinational Corporations • Nordic Investment Bank (NIB) • WWF France • AMC Strategy • Novethic • Trucost 9/16 9
Policy Deliverables Outcome A more aligned 1. Vision and financial system Shared Vision and Understanding Sustainable Finance & economy Integrating sustainability into the functioning of the EU Financial System Adapting processes, Addressing 2. Integration of incentives & culture Capturing long-term sustainability A more obstacles to across the entire and sustainability into the EU sustainable sustainable Financial Policy financial system lending investment risks orientation and and Regulation & economy & lending chain time misalignments Framework Real economy 3. Recommendations Mobilizing more capital flows towards a sustainable economy with investments & sustainable to mobilizing more job creation projects/assets, capital flows to supply and • Expanding financial markets for sustainable assets sustainability projects • Orienting capital towards new sustainable investments / projects demand 10/16 10
Key areas identified by the Expert Group Topics covered Objectives 1 • Defining a shared European vision, scope and focus in sustainable finance Vision of Sustainable Finance and with key success factors understanding • Adapting processes, incentives and culture across the entire investment and Adapting processes, incentives and lending chain culture across the entire investment • Developing proposals for corresponding adjustments in the EU financial Integrating and lending chain policy and regulatory framework sustainability into the functioning of • Addressing and mitigating risks linked to long-term sustainability challenges 2 the EU • Defining nature of new climatic risks Addressing and mitigating risks regulatory • Tackling financial stability policies and macro/micro regulation and financial policy • framework Addressing structural obstacles and Addressing structural obstacles and time misalignments preventing long- term and sustainable investments time misalignments Mobilizing Expanding financial markets for • Expanding and supporting development of nascent green and social assets more capital sustainable assets by defining the actors, instruments, processes, incentives, etc. flows towards a 3 sustainable economy with • How to scale up and re-orient capital flows to match the investments? investments Orientation of capital towards • How to contribute to the success of a comprehensive 2030 sustainable, & job sustainable investments/projects smart and inclusive European growth strategy creation 11/16 11
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