Vice-President Valdis Dombrovskis speech on sustainable finance at the European Parliament

Brussels, 6 June 2017

 

Honourable colleagues, Honourable Members of the European Parliament,

Thank you for this invitation to speak on this occasion, indeed it is very timely as it's just a few days before the Capital Markets Union Mid-term review.  

It is the right time, as we reaffirm and strengthen our commitment to protecting our planet.

The Paris agreement is a landmark agreement. It is ambitious and fit for purpose. So we regret last week's decision by the Trump Administration to withdraw from it. But the Paris agreement will not be reversed.

While some choose to look backwards, we in Europe will look ahead to the low-carbon future.

The EU should take global leadership in the fight against climate change.

This means we need to work in several directions:

  • to accelerate the transition to a low-carbon economy.

     

  • to create more jobs, innovation and investment in renewable energy and energy efficiency.

     

  • And that sustainable and green finance will be decisive for providing the actions we need to meet this challenge.

     

    And we will act together with our partners as was made clear during the EU-China summit.

     

    This will provide businesses, investors and researchers around the world with the certainty they need to build a global low-carbon economy.

Today I would like to discuss three aspects of our work to improve the conditions in the sustainable and green finance sector:

  • First, on the role that the financial sector can play in ensuring a greener and more sustainable future.

     

  • Then, on the work to develop a comprehensive strategy on sustainable finance.

     

  • Finally, on our Capital Markets Union, as I was mentioning, we are reviewing it this Thursday and it will include an even stronger sustainable investment dimension.

     

First, on investment.

We need investment of about €180 billion per year, notably in clean energy, over the next two to three decades to keep the increase in global average temperature to well below 2 degrees Celsius.

We see the scale of the challenge, and the Paris agreement itself underlined how central the finance sector is to meeting this enormous challenge.

This shows the need to turn financial flows towards green and sustainable efforts. Because with only public finance, we will not be able to meet this challenge. We need to turn private finance to this area, not just for tackling climate change, but also wider environmental and sustainability challenges.

With the European Fund for Strategic Investments, the EU is already working to accelerate investment in sectors such as renewable energy and energy efficiency.

So far, the fund has helped to provide more than €180 billion in financing of investments all over Europe, to compare with its initial €315 billion target, which we are proposing to increase.

But we need to move beyond public finance. And we already see private investors starting to increase their participation in this area:

  • In 2015, over €300 billion was invested globally in the clean energy sector, six times more than a decade ago.

     

  • So far, 8.1 million jobs have been created globally by the renewables sector, including over 1.1 million in Europe. And this is only one aspect of the green economy.

     

    So we see new solutions for investors who are conscious of sustainability and wish to support suitable projects and companies.

     

    One example is the green bonds market, which is also developing.

     

    France has issued its first green bonds to the tune of €7 billion, and Poland has issued €750 million's worth earlier.

And the EU is already at the forefront of integrating sustainability in financial regulation. The European Parliament has often been a driving force in this area:

  • As of next year, large companies listed in EU markets will be required to disclose relevant information on environmental, governance, social, and human rights aspects of their business activities.

     

    We believe that this added transparency will directly benefit investors, but not only investors.

     

    Here we are also following the work of the Financial Stability Board on climate-related financial disclosures. So we took their recommendations into account as much as possible in our guidelines on non-financial reporting, which we will adopt at the end of this month.

     

  • We have taken steps to incentivise pension funds and shareholders to take sustainability into account in their investment decisions.

     

  • Securitisation was already mentioned several times. Our recently agreed rules on securitisation introduce environmental, social and governance criteria, in particular by requiring the disclosure of available data on the environmental impact of residential mortgages and auto-loans packaged in securitisations.

     

We believe that deep and efficient capital markets can make a strong contribution to funding the transition to sustainable societies.

Investment needs are far too large to be met only from the public purse.

We need to reconfigure the economic and financial system so that private capital is directed towards more sustainable uses.

There is also a financial stability dimension. Long-term investment decisions must properly internalise environmental and other risks if financial systems are to be resilient.

 

But we believe the broader challenge is more fundamental than that.

For truly sustainable development from an economic, social and environmental perspective, we need a deeper re-engineering of the financial system.

This means developing an overall vision of sustainable finance and clear criteria for what is green or sustainable.

We have created a High-Level Expert Group to help us to develop this strategy. 

 

We are now awaiting their interim report to hear how they are getting on,

 

and we are inviting all interested parties to attend a stakeholder conference which will follow.

 

To expand green and sustainable asset markets and further develop green products, we need to give institutional and retail investors legal certainty.

 

In other words, a clearer understanding and more trust in the green or sustainable nature of investment projects.

 

This will help them better direct their capital towards a long-term impact.

 

So for green finance, this would have to include:

  • commonly agreed definitions,

     

  • transparency on risks,

     

  • and common standards and labels to make sure that investments comply with strict criteria and have a measurable positive environmental impact. In a sense, that there is no green-washing.

The High-Level Expert Group is also looking into this.

 

We see that Europe is already becoming an investment destination for low-carbon investment.

We believe this is just the beginning. We should aim to be the global centre of gravity for green assets and investments. 

We also need to attract those investors who are looking to fund the transition to the low-carbon economy. For this, Europe has to offer better regulation, concrete targets and standards.

This puts the work of the High-Level expert group in a new light.

 

But the Commission is not only waiting for the expert group to conclude its work.

Our flagship project for stronger and more integrated capital markets - the Capital Markets Union - has already a strong sustainability dimension.

Over the past 20 months, we have delivered more than half (20/33) of the measures announced in our Action Plan, which will help free up funding for businesses in all stages of their development, to fuel innovation and growth.

Brexit makes this task even more important. As our largest financial centre is leaving the single market, the rest of the EU economy needs deeper and more integrated capital markets more than ever.

That is why on Thursday we will be entering phase two, by taking stock of what we have already achieved and putting forward new actions significantly raising our level of ambition for integrating EU capital markets by 2019.

The mid-term review proposes also some new examples of work that we need to deliver:

  • We need to be consistent throughout the investment chain in integrating green and sustainability considerations, for example by clarifying fiduciary duties of asset owners and asset managers.

     

  • We will need to look at rating methodologies, as well as the investment mandates of institutional investors and asset managers.

     

  • Above all, we are proposing to evaluate sustainability considerations systematically as part of upcoming reviews of financial legislation.

     

    On this I am grateful for your input and the input of the European Parliament.

 

Thank you very much.