Winds of change: EU embarks on sustainable finance mission

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German Chancellor Angela Merkel at the closing press conference of the G-20 summit. Hamburg, 8 July. [Clemens Bilan/ EPA]

Disturbing developments on the international political scene have only increased the resolve of the European Union to take the lead on climate change action. Flavia Micilotta explains why financing is a key component.

Flavia Micilotta is executive director of the European Sustainable Investment Forum (Eurosif).

After the tremendous build-up to the 2015 Paris Agreement, 2017 became what European regulators have decided to mark as the year of sustainable finance.

The establishment of the European Commission’s High-Level Expert Group on Sustainable Finance (HLEG) reflects the EU’s commitment to this agenda.

This was reinforced at the G20 summit last week where, under a German presidency committed to tackling climate change, nineteen countries announced an ambitious commitment to the Climate and Energy Action Plan, in which climate finance was described as ‘key’.

By setting up the HLEG, the Commission took a big step forward to collaborate in the creation of finance that better serves both our people and the planet. The objective of the group is to provide, by the end of this year, recommendations for a comprehensive EU strategy on sustainable finance as part of the Capital Markets Union (CMU).

The Commission will then draw on these recommendations to determine how to integrate sustainability considerations into the EU’s rules for the financial sector. We will create a more sustainable chapter for Europe and its economy by making finance the enabler for climate action.

Europe’s ‘green alliance’ with China is also an exciting step in the repositioning of leadership on the global climate agenda.

The Expert Group brings together a committed representation from a variety of different stakeholder organisations. Together with the backing of the vast majority of the G7, we aim to ensure that the commitments of the Paris climate accord are not only respected but also integrated into sustainable financial policy via work on de-carbonisation, energy efficiency or global warming.

Europe’s finance sector has a critical role to play in the world’s battle to adapt and survive the challenges of global warming. Financial capital must be encouraged to flow towards more sustainable technologies and be available for energy transition and the longer term strategic shift of emphasis in business transformation.

Environmental risk is the reality of any long-term perspective and must guide our decisions in terms of policy making as well as regulation. Europe’s jobs, our economic growth and our competitive edge depend on it.

The HLEG will be considering in its work, the role of traditional financial players and highlight ways in which they can truly re-position themselves and act as innovators in sustainability.

There is already a lot of work carried out by the European Commission which has been pivotal in setting the right framework for a high proportion of sustainable projects to be developed, and banks have had a crucial role to play in their story.

Mainstream private sector players have shown their recognition that the transition is underway and inevitable through their support of the Task Force on Climate Related Financial Disclosures (TCFD) and their collective development of future-orientated climate disclosure recommendations.

Just as in recent weeks more than 200 mayors of American cities have re-affirmed their pledge to remain committed to the Paris Agreement, European cities such as Paris, Frankfurt, and London have taken it upon themselves unilaterally to take action. They have reviewed their contribution to sustainability and looked at ways to enhance their competitiveness.

Further encouragement of this ‘race to the top’ is in our interest to turn European capitals into dynamic and vibrant hubs for sustainable practices.

SMEs have an important role to play here too, with our support to boost their potential as the innovators for a sustainable future. It is an opportunity to create a truly sustainable CMU, with a regulatory framework that underpins the role of SMEs as pillars of Europe’s economy. This is an opportunity for social cohesion alongside an emphasis on jobs and economic growth and as such, it must not be ignored.

Germany, with its focus on interlinking energy and climate policies in a bid to improve the sustainability of material economies, is well placed in this Presidency of the G20 to take the necessary steps required to work towards the targets of the 2030 Agenda and the Paris Agreement.

The G20 has made a green economic system a top priority, with investment in infrastructure and innovation as critical drivers of growth and development. It has also given fresh impetus to the role of sustainable finance.

We look forward to continuing the conversation on the critical role of both financial centres and SMEs to help build and sustain finance in the service of people, and the Capital Markets Union.

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