Finance: becoming green while in the red

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Commissioner for Financial Services, Mairead McGuinness, committed to unblock EDIS during her confirmation hearing last October. [EPA/STEPHANIE LECOCQ]

Money talks, but it also needs to listen: listen to the demand for change for a financial system that takes account of non-financial issues, from climate change to social inclusion, writes Commissioner Mairead McGuinness.

Mairead McGuinness was recently appointed as EU Commissioner for financial services, financial stability and Capital Markets Union. This opinion piece was written exclusively for EURACTIV.

We are living through unprecedented times: a pandemic that is forcing us to rethink how we live, work and play and a climate crisis that needs urgent attention. 

The EU’s economy alone is expected to contract more than 8% this year, according to the European Commission.

At the same time, we are in a climate emergency, as the European Parliament declared in December 2019 – around the same time as the first signs of the coronavirus were appearing.

The need for EU solidarity and global collaboration was never greater.

Rightly, the COVID-19 crisis is not being used by Europe to delay action on climate change and the green transition. The commitment to the European Green Deal remains strong, to help us tackle climate and environmental challenges and stimulate sustainable growth and recovery.

In an historic first, the European Commission has started to borrow to finance the recovery.

The massive sum of 750 billion euros will be mobilised, in the form of grants and loans, to help member states come out the other side of this crisis.

The Commission has proposed that 37% of all recovery funding should be earmarked for green projects. To support this, President Ursula von der Leyen has proposed that 30% of the money raised to finance the recovery will come from green bonds.

This will help further mobilise the financial system to provide the resources to make the recovery and the climate transition happen. The first signs are promising: the recent bond issue by the Commission to support EU job markets generated massive market interest. 

Investments integrating environmental and social factors have outperformed the rest of the market during the crisis. 

Increasingly pension funds and other investors are demanding clear statements from companies on how they are addressing climate, environmental and other non-financial issues.  

Pivoting the financial system towards sustainability is only in its infancy, yet we know that time is not on our side to avoid the massive destruction of climate change, environmental degradation and biodiversity loss. 

We need a complete rethink. Sustainable finance needs to become mainstream to have a transformative impact on society and on the planet, while also generating strong returns. 

Europe is leading the way. 

Work on a renewed sustainable finance strategy is progressing quickly in the European Commission. The strategy will be launched in early 2021 and will include well-defined goals with clear deadlines to ensure we stay on the right path. Public feedback so far confirms broad support for our ambitious plans.

We are already developing the sustainable finance taxonomy, sustainability disclosures by companies and investors, climate benchmarks and upcoming measures for green bonds and ecolabels for investments.

The sustainable finance taxonomy classifies which activities are green. But we also have to decide how to help sectors and industries move away from unsustainable practices to reduce harm.

Some are calling for a negative list identifying what is unsustainable today. Others warn that this approach may result in companies and projects struggling to access finance to transition towards activities with a low and ultimately positive impact on sustainability. The new Platform on Sustainable Finance is looking into these issues.

What role is there for transition technology? Policies should not unfairly punish polluting industries and the people whose livelihoods depend on them, but rather incentivise and guide them to clean up their act.

The sustainable finance agenda is not just green but also social. The COVID crisis focused attention on the importance of a resilient public health system. It brought into sharp focus that those in lower paid jobs, often women, are most vulnerable. Young people, too, are severely impacted. We have to address these realities in our future investment agenda.

Europe cannot do it alone – we are working with the International Platform on Sustainable Finance. And we hope that US President-elect Joe Biden will support the sustainable finance agenda as part of his clear commitment to tackle climate change. 

The EU is committed to climate neutrality by 2050: only 30 years away. And there is already a much higher target reduced CO2 emissions by 2030. To get there requires enormous investments.

There are some neigh-sayers who would kill this agenda before it begins, pressing instead for a status quo recovery. This would see money wasted in unsustainable and climate-damaging practices. 

There is no time to lose.

Any business, large or small, that does not take account of climate and environmental risks in their operations will soon find that their balance sheet will look very unbalanced.

A strong regulatory and policy framework, which the revised Sustainable Finance Strategy will provide, will ensure that money flows towards sustainable projects. 

Going green while in the red is not just possible, but essential.

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