Vice-President Valdis Dombrovskis

Keynote speech on EU's sustainable finance initiatives

at the Academic Conference on Promoting Sustainable Finance

Brussels, 9 January 2019

 

Ladies and Gentlemen,

It is a pleasure for me to join you on this second day of reflection on how to promote sustainable and green finance.

Your work is essential for developing this sector and accelerating green investments in Europe, so I wanted to personally thank you for your contribution. And I also wanted to use this opportunity to highlight where we are with the EU's sustainable finance initiatives.

More and more people are realising that finance is one of the missing links in the fight against climate change, and for a more sustainable economy. For example, in only a few years, the market for green bonds has boomed. In 2017, global issuance reached €151 billion, covering a large chunk of clean energy investment.

But there is still a lot of work to do before green finance can match the scale of the climate problem.

And we do not have much time.  

The year 2018 was the fourth warmest year on record, following years of record-high temperatures in this century. The heatwave that hit Europe last summer was so strong that we had forest fires north of the Arctic Circle in Sweden.  The year before that, in 2017, the amount of catastrophe-related losses covered by insurance reached an all-time high – €110 billion. And these losses are projected to increase.

The Paris agreement is the global response to this challenge, and Europe is committed to leading its implementation.

So far, the EU has reduced carbon emissions by 22 % compared with 1990 levels. And we have a number of policies in place to go much further, and reduce emissions by at least 40 % by 2030.

But we are also looking further than that. On 28 November, the Commission proposed its strategy for a climate-neutral economy by 2050. This strategy shows how Europe can lead the way to climate neutrality, by approaching this investment challenge as an economic opportunity.

Most of the technology we need to go carbon neutral is already in use today, with good results.

For example, on a windy day in December of 2018, almost a quarter of Europe's entire electricity production came from wind energy alone. Overall, Europe is on track to reach its goal of 20% renewable energy share.  

Now the challenge is to scale this up, developing options for storing surplus energy, and decarbonising other parts of the economy. There is already fierce competition in the global race to develop low-carbon technology and business solutions. And this is where the full engagement of the financial sector will be key. By supporting Europe's climate ambitions, it can also benefit from them.

This is why, in March of last year, the Commission adopted an ambitious Action Plan for sustainable finance. It lays the ground for reorienting capital flows towards sustainable investments, and for embedding long-termism in the financial sector. It also aims to improve the handling of climate change risks in the financial sector.

We followed up the Action Plan in May with three legislative proposals:

1) First of all, we proposed to develop an EU-wide taxonomy for sustainable economic activities. Today, it can be quite difficult to identify how green a given investment or portfolio actually is. And this is one of the main obstacles to scaling up green finance.

The taxonomy will be developed step by step, based on scientific evidence. It will be used for a range of further measures to enable sustainable finance to really scale up in Europe, such as an EU green bond standard.

I know you have already had fruitful discussions on this topic yesterday, among other topics. In addition, we are looking into extending the European Ecolabel to green financial products. Because we need to make green options easier to identify also for retail investors.

2) Our second proposal concerns the disclosure requirements of asset managers, institutional investors, and financial advisors. While the number of investment managers that consider sustainability is rising, it is not rising fast enough. Our proposal will require them to disclose how they integrate sustainability considerations into their processes.

To better inform retail investors, we will also require investment and insurance advisors to ask clients about their sustainability preferences, and offer suitable investment products.

3) Finally, the third proposal is about giving investors the tools to measure the carbon footprint of an investment strategy using financial benchmarks. In particular, we have proposed to define standards for low-carbon benchmarks, and for benchmarks with a positive carbon impact. These benchmarks will help investors replicate a low-carbon portfolio, or measure the performance of their own low-carbon investment strategy.

To help implement our Action Plan, we have put together a technical Expert Group on sustainable finance. It is very helpful, for example on the taxonomy, where its members are busy drawing up guidelines to assess the sustainability of economic activities. I would like to thank the members, many of whom are also here today, for the energy they are investing in the success of this project.

The experts recently published their first set of draft criteria for economic activities that could contribute to climate mitigation. These criteria are now open for feedback. There will also be an open public consultation on the final report of the Technical Expert Group. The first part of the taxonomy - covering climate change adaptation and mitigation objectives - could be adopted by the end of this year.

An EU taxonomy will be a new and potentially ground-breaking piece of legislation. We will need all the expertise, knowledge and support we can get to quickly get it in shape. So I welcome and encourage your personal contribution to this important work.

To conclude, 2019 will be a crucial year for sustainable and green finance.

We have already proposed three pieces of legislation, on a taxonomy, sustainability disclosures, and low-carbon benchmarks. Thanks to quick work by the European Parliament and the Council, we are now at the point where trilogues are beginning on these last two proposals. 

At the same time, we are working full steam to finalise and adopt the Taxonomy proposal.  This is the basis for developing further actions, so I hope that co-legislators can reach a common approach on the framework regulation still this term.

I’m pleased to note that the technical expert group is also delivering on green bond standards and benchmarks. We do hope that other countries and jurisdictions will be inspired by the work we do, and follow Europe's lead in this urgent matter.

I wish you all a successful continuation of the conference, and of your further research.

Thank you very much.