On 8 March 2018, the Commission adopted an Action Plan on Sustainable Finance (the “Sustainable Finance Action Plan”) setting out its strategy towards a financial system that supports the EU’s climate and sustainable development agenda. The Sustainable Finance Action Plan includes 10 key initiatives broadly based on the recommendations of the Commission’s High-Level Expert Group on sustainable finance published in January 2018.
Among the legislative initiatives, the Sustainable Finance Action Plan foresees the establishment of a unified EU classification system for environmentally and socially sustainable activities. Embedded in the EU law, such common taxonomy would provide the basis for other non-legislative actions, such as sustainability standards, labels and benchmarks.
Furthermore, the Commission intends to adjust the fiduciary duty of asset managers and institutional investors in order to incorporate sustainability considerations in the investment process. Insurance distributors and investment firms are also going to be encouraged to acknowledge sustainability factors in their product selection processes and suitability assessments for their clients. Moreover, the Commission plans to explore the merits of including environmental, social and governance aspects in credit ratings and market research.
To incentivize financial institutions’ participation in the fight against climate change, the Sustainable Finance Action Plan also proposes the recalibration of capital requirements for green investments. The so-called “green supporting factor” would enable financial institutions to hold less capital for sustainable financial products.
Various Sustainable Finance Action Plan initiatives focus on increased transparency in corporate reporting and sustainability disclosure. The Commission has already launched a “fitness check” of the existing legislation on public corporate reporting and aims to evaluate certain aspects of the International Accounting Standards Regulation as well as the standards’ impact on sustainability. Inspired by the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, the Commission will also revise its guidelines on non-financial information.