European Commission calls for ‘deep re-engineering of the financial system’ to support sustainable economies

As part of the mid-term review of the flagship Capital Markets Union (CMU) programme, the Commission has committed to a ‘deep re-engineering of the financial system’ to promote sustainable economic, social and environmental development. The CMU aims to promote deeper, more integrated capital markets across Europe and in doing so, channel capital to companies, SMEs and infrastructure projects.

As part of the action plan, the Commission will:

• make sure that sustainability is considered during all upcoming reviews of financial services policy,
• further integrate ESG issues into supervisory processes, rating methodologies and investment mandates, and
• strengthen ESG disclosure and ensure that EU non-financial reporting guidelines build on the work of the FSB Taskforce for Climate Related Disclosure.

In addition, the Commission will respond to the recommendations of the Sustainable Finance High Level Expert Group (HLEG), to which the PRI is an observer, no later than Q1 of 2018. A public hearing on the interim findings of the group is scheduled for 18 July.

The communication recognises that long-term risks, such as ESG risks, are an important part of investment analysis, and may pose risks to the stability and functioning of the financial system. But it also goes further, recognising the vital role that the financial system must play in delivering key sustainability objectives such as The Paris Agreement and the Sustainable Development Goals.

Commenting on the release, Nathan Fabian, Director of Policy and Research at the PRI, said: “We are delighted to see the Commission focus on aligning the financial system with sustainable and equitable economies. Commitments to improve ESG disclosure, better integrate ESG in rating methodologies, and take sustainability considerations into account in upcoming legislative reviews of financial legislation are very welcome and consistent with the approach PRI has been working on”.

Phillipe Zaouati, CEO, Mirova, chairman, Finance for Tomorrow said: “Mirova and the Paris green and sustainable finance initiative welcomes the CMU mid-term review report. It reflects the High Level Expert Group’s reflection that a deep re-engineering of the financial system is necessary for investments to become more sustainable and for the system to promote truly sustainable development from an economic, social and environmental perspective”.