Latest EU Commission SF milestone will leave green recovery short-changed

Leading sustainable finance think-tank Berlin-based ‘Climate & Company’ says latest EU effort lacks ambition leaving success of Commission’s upcoming ‘Fit for 55’ climate policy overhaul in doubt.

The latest ‘Renewed Sustainable Finance Strategy’ – an updated version of the EU’s ground- breaking 2018 action plan – once again puts EU businesses on alert that they need to increase their efforts to embrace a sustainable financial system (i.e. the EU Taxonomy) and channel financial flows towards green investments. But, according to ‘Climate & Company’, it remains far too vague on the actions needed right now to support the upcoming climate policy review (Fit for 55) which aims to deliver the bloc’s ambition of a 55% reduction in carbon emissions by 2030.

Whilst the latest package references almost all the key aspects of the 2018 plan, it falls well short of expectations on a number of issues despite an EU-wide public consultation which showed that many people, civil society organisations and companies felt the original strategy did not go far enough. These include forcing greater transparency on the sustainability of public spending such as the post-COVID ‘build back better’ projects or the need to look at the impact of finance and investments at international level or on the planet’s biodiversity ecosystem. Put simply, efforts to improve our climate through greener, more sustainable financing will be unwittingly neutralised if the impact on such issues – especially biodiversity – are not urgently considered.

Ingmar Juergens, Managing Director at Climate & Company, said:

“This latest EU effort to improve its sustainable finance roadmap is a missed opportunity. A ‘green leap forward for planet-kind’ could have been possible if there had been greater focus on taking concrete steps forward and going beyond climate change by taking the impact on biodiversity into account. Instead, the EU Commission has stumbled – failing to recognise that sustainable finance is the financial backbone of the green deal, its biodiversity strategy and bloc’s ambitious 55% reduction target for 2030.”

Climate & Company has identified the following shortcomings in the Renewed Sustainable Finance Strategy:

• Transparency: a need to extend financial reporting beyond just business to public spending (e.g., multiple government spending incl. development spending such on climate mitigation which avoids greenwashing of climate pledges).

• Biodiversity: sustainable finance should not be limited to the climate crisis and tackling biodiversity not limited to disclosure and  biodiversity risk reporting. No reference is made to the importance of pricing biodiversity risks and impacts (analogous to carbon pricing), the discussion of “greater protection from climate and environmental risks” is limited to climate change and agnostic to biodiversity dependencies, while biodiversity is  missing altogether from the strategy’s “global pillar”. also the proposed amendmantes of the risk framework for banks, while highly welcome, only talks about banks’ “internal stress tests to test their resilience to climate change risks”, not biodiversity, pollution or water risks.

• Reinforcing international cooperation needs to go beyond expanding the membership of the International Sustainable Finance Platform: EU should sit in the driving seat of international efforts to shape sustainable finance and further shape global market standards. To this end, the IPSF needs to be equipped with human and financial resources.

Background on the Renewed Sustainable Finance Strategy

The Renewed Sustainable Finance Strategy builds on the 2018 Action Plan on Financing Sustainable Growth. It identifies ways as to how capital flows can be reorientated to enhance sustainability, how (climate) risks can be managed, and how sustainability-related transparency on the financial market encouraged.

The focus is on four areas. First, the strategy formulates actions to finance the path of the real economy towards sustainability. Second, inclusiveness such as the inclusion of small- and medium-sized enterprises (SMEs) is considered. Third, the double materiality perspective is emphasized which adds the ‘environmental materiality’ to the ‘financial materiality’ (i.e. environmental impacts caused by a company which are not directly connected to the company’s financial performance). Lastly, global cooperation should be fostered.

The 2018 Action Plan has triggered several important legislations such as the intensely discussed EU Taxonomy on sustainable finance, the EU Ecolabel for financial products or the recently proposed corporate accounting directive (CSRD). In last year ́s public consultation for the renewed strategy, a vast majority of the responding stakeholders spoke in favour of continuing to follow the path and to create even more transparency, e.g., through companies reporting how their strategy is in alignment with the Paris Agreement or green standards and labels.

Background on Climate & Company

Founded in 2020, ‘Climate & Company’ brings together leading senior sustainable finance expert economists from the EU institutions, academia and the banking and investment sector. The experienced leadership team is supported by the knowledge, energy, vision and commitment of a growing team of young sustainable finance economists and communication experts from prestigious universities and specialised finance schools. This ‘generational mix’ provides the special formula driving the successful expansion of this think-tank in less than two years.

The entire team is united in a single and pragmatic goal: to help Europe’s large and small businesses be ready to lead the transition to a greener, more sustainable future; and help policymakers to get the policy right. Over the past two decades, these ground-breaking analysts have helped to shape the EU’s current climate and sustainable finance ambitions. They have achieved this by developing the most advanced and up-to-date evidence-based methodologies to gather and interpret business data for sustainable finance solutions and products for the global marketplace. ‘Climate & Company’ helps bring climate credibility to the global financial system as well as businesses large and small.

Ingmar Juergens, Managing Director and co-founder of Climate and Company, is available for on-record interviews (videoconference for broadcasters) and background briefings to professional media outlets and journalists. Ingmar is a former senior economic advisor to the European Commission on climate and sustainable finance issues (i.e. the EU Taxonomy) and has spent his more than 25 years’ career developing new methodologies to help turn finance into a sustainable industry whereby it is not just good for the climate but good for business too.