The European Parliament’s Committee of Economic and Monetary Affairs endorsed on Monday (5 November) a decision that makes it mandatory for all financial market participants, including banks, to disclose sustainability risks and impacts of their portfolio, a move that NGOs say brings the EU one step further in greening its financial system.
“Monday’s vote has set a very high level of political ambition for the next steps of the Sustainable Finance Action Plan,” said Eleni Choidas, European policy manager at ShareAction, a London-based NGO promoting responsible investment.
WWF welcomed the high level of ambition demonstrated by the MEPs, explaining that such disclosure was fundamental to ensure that investors make better-informed decisions about the environmental and social risks they are exposed to, and the impacts they create with their investments.
The two organisations, both involved in the European Commission’s plan for sustainable finance, explained the MEPs’ decision was a step further in gradually making sustainability a mainstream in the financial system.
Sebastien Godinot, an economist at WWF European policy office, said the MEPs understood the importance of mainstreaming sustainability disclosure to all financial market participants and financial products.
“This is necessary to ensure that disclosure does not only focus on the small niche of green financial products. This is what the EU High-Level Expert Group on Sustainable Finance (HLEG) had recommended,” he said.
The systemic change of the financial system was the main thread in the HLEG report published on 31 January this year in a bid to put “the EU economy on a more sustainable path.”
The European Commission published on 8 March its strategy for a financial system that supports the EU’s climate and sustainable development agenda, largely based on the HLEG’s recommendations. This plan is part of the Capital Markets Union’s (CMU).
On 24 April, the Committee of Economic and Monetary Affairs (ECON) released a report on sustainable finance calling for a label to identify sustainable financial strategies, a uniform taxonomy and common standards for green investments, as well as compulsory disclosure requirements on companies for sustainability factors.
The Parliament’s addition of a ‘sustainability risk’ definition to the proposed legislation will help provide a predictable framework to encourage investment into sustainable markets, Sebastien Godinot also said, adding that investors need certainty, and clear definitions are the basis of that.
Eleni Choidas of ShareAction said the Commission has now been empowered to adopt delegated acts on IORP, the main directive governing the functioning of occupational pension schemes.
“With this empowerment, the Commission has received a tall order to ensure that all pension savers have their long-term interests taken into account by their trustees, and to ensure their money is invested sustainably. It is now up to the Council to support these proposals and allow the next Commission to progress boldly on strengthening investors’ duties,” she said.
WWF said it strongly encourages the Council during the upcoming trilogue discussions to follow the Parliament’s lead in making sure that sustainability disclosure is mainstreamed to all financial market participants and products.
The next ECON’s meeting is scheduled for 12 November in Strasburg.