European Commission calls for feedback on proposals to ‘green’ financial markets

Consultation launched for HLEG recommendations

by Sophie Robinson-Tillett | July 20th, 2017

The European Commission is calling for market feedback on the interim recommendations made by its High Level Expert Group on Sustainable Finance, in an unusual move that reflects the growing momentum behind the initiative.

The group last week released its first report, laying out initial thoughts about what the European Commission could do to make financial markets more supportive of green and sustainable investment. As well as addressing broader topics such as credit ratings agencies and long-term investing, the report also made eight early-stage recommendations – six months ahead of the official deadline for its proposals.

“The report normally should have been just a stocktaking report… But since the global political environment was so conducive, we travelled a bit faster,” said Christian Thimann, Group Head of Regulation, Sustainability and Insurance Foresight, AXA Group and Chair of HLEG, speaking at a European Commission event in Brussels to discuss the findings. As a result, the Commission felt there was enough substance in the interim report to warrant public consultation, RI understands. HLEG itself will oversee the consultation, not the Commission, and the group will also analyse the results.

The consultation will run until September and takes the form of a questionnaire, which can be found here.

Some members of the finance community have been frustrated by the lack of representation on HLEG. Banks, for example, have played an instrumental role in developing the green and social bond markets, which are a focus of the group, but the only representative dedicated to commercial banking in the 20-strong group is Mieczyslaw Groszek, Vice President of the Polish Banking Association. It is hoped the consultation will enable banks – as well as other stakeholders that aren’t included in the formal HLEG structure – to engage in the process.

The report was warmly welcomed by a number of members of the European Commission at the event.

Jyrki Katainen, European Commission Vice President for Jobs, Growth, Investment and Competitiveness, said the Commission did “not see sustainable finance as a fad or a market stunt,” describing it as “at the heart” of the Capital Markets Union. He hailed the interim report as “a powerful and clear manifesto for change”, adding: “We have a long way to travel… but now we have a roadmap”. The EU is expected to need an additional €180bn of investment each year into climate-aligned projects in order to meet its goals. “Usually when I hear these kind of figures I get depressed,” said Katainen. “But the good thing is there is a solution in this case and it’s the capital markets.”

However, not everyone was bullish. Economics Professor John Kay said in a keynote speech: “I hate to somewhat challenge the mood that has prevailed up until now, but when Vice President Katainen said that he’d found the answer to the problems of sustainable finance, and it was capital markets, I’m bound to say I could not disagree more fundamentally. I think capital markets are much more part of the problem than they are of the solution, and I think it’s important that we realise the short time horizons which everyone in this room is concerned about – in business and in environment – are not those of the underlying investors: they’re the time horizons which are introduced into the process by intermediaries. We have far too many intermediaries and far too much intermediation.”

He added that “market-based capital allocation and long-term decision making are not things that fit very well together”.

Valdis Dombrovskis, Vice-President for the Euro and Social Dialogue and head of Financial Stability, Financial Services and Capital Markets Union, reiterated the Commission’s plans to “act on the findings by early 2018”, saying that the focus would initially be on recommendations to develop green taxonomies and labels. “These labels will provide trust,” he added.