Brussels, 13 February 2018
Ladies and Gentlemen,
Thank you to the Swiss Finance Council for the invitation to introduce the second panel of the day, on sustainable finance. This is an area that is witnessing a lot of activity these days – not least here in Europe. So I am happy for this opportunity to update you about our work on this important topic.
The discussion paper that was presented earlier today underlined an important fact about sustainable finance: it was cross-border cooperation between industry actors that sowed the seeds of the growth we are seeing today. In fact, Switzerland was an early enabler of green bonds. In 2015, it became the first national government member of the Climate Bonds Initiative.
These early initiatives have shown that sustainable finance can work. But my message today is that the time has come to aim higher. For sustainable finance to reach its true potential, we need to provide the right regulatory conditions and incentives, also across borders. And the European Union is determined to take the initiative and provide global leadership in this effort.
But before I get to sustainable finance, allow me to touch on another topic that was covered earlier today, namely on international regulatory cooperation.
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Last year, the EU economy grew by its fastest pace in a decade, 2.4 percent. And for this year, our winter forecast which came out last week predicts another year of solid economic growth – at 2.3 percent.
This growth is possible today only thanks to the substantial financial sector reforms, which were put in place after the crisis. Building on the financial reform agenda agreed in the G20, the EU adopted more than 40 pieces of legislation to restore financial stability and market confidence. Today, banks are stronger and much better capitalised than some years ago.
The crisis led to some retrenchment in cross-border financial activity, such as international bank lending. But financial markets are still closely interconnected. For example, in 2016, over 25 percent of global equities and 31 percent of global bonds were owned by foreign investors. And with new digital technologies making it cheaper and faster to transact across borders, these numbers could rise further.
For healthy economic growth to continue also in the future, we need to remember the lessons from the crisis. It showed that our financial system is truly international, and that financial stability cannot be achieved within national borders. This is why the EU is committed to maintaining and developing strong international standards to avoid regulatory arbitrage and renewed instability. To sum it up: global markets need global rules.
This is a conviction that I know is also shared by Switzerland. In fact, we are partners with converging positions in many of the international standard-setting bodies, such as the Financial Stability Board and the Basel Committee.
International cooperation is also crucial for maintaining a level playing field for banks. That is why we welcomed last December's agreement on reforms to the Basel III framework. It is now essential that all major jurisdictions implement all the key elements of this agreement.
In 2016, we presented a proposal to implement standards already agreed in the Basel Committee.
This is part of our ongoing efforts to reduce risks in the European banking sector, and it is currently with co-legislators. But only once last December's agreement is implemented can we finally say that the last major piece of the global post-crisis regulatory reform is in place.
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Let me now return to the topic of the panel - sustainable finance. Ladies and Gentlemen, we are about to witness a major shift in our economy. We are moving away from a model that depends on extracting large amounts of finite resources from nature. And we are heading towards a low-carbon, more resource-efficient economy.
This is essential to limit global warming to well below 2 degrees. And it will be a global effort. The fact that over 170 countries have ratified the Paris agreement makes that clear.
In Europe, we will need an estimated €180 billion in additional yearly investments to meet our climate and energy targets. And it is clear that public money will not be enough for this. So we need to re-direct private capital towards investments in green and sustainable projects.
That is why about one year ago, the Commission appointed a high-level expert group on sustainable finance. Their mission was to elaborate a full set of proposals for the financial sector to support the transition to the low-carbon economy.
Less than two weeks ago, they published their final report. It is a manifesto for far-reaching reform that includes the whole financial sector. By implementing it, the EU should lead global developments.
The Commission is ready to follow up on the report's recommendations and deploy sustainable finance at a pan-European scale. Next month, we will present an Action Plan for mobilising green investment and integrating sustainability into all aspects of the financial system.
Let me outline some elements:
Our priority will be to establish a unified EU classification system – or taxonomy - for sustainable assets and activities. This will help us to define what is green and what is not green, and identify areas where sustainable investment can make the biggest impact. This spring, we will present a legislative proposal on the governance of this EU classification system.
Also this spring, we will present a proposal to clarify the duties that asset managers and institutional investors have to take sustainability into account in the investment process. This would help their clients get more information and options for sustainable investments.
We are also looking at actions that would link into and build on the EU classification system:
For example, a larger market for green financial products can drive the investment that we need and help us meet our climate goals. That is why we intend to establish EU criteria and labels for green bonds and investment funds, building on the EU classification. By allowing investors to easily identify products that comply with green or low-carbon criteria, this could help those who are looking for more sustainable options.
Finally, we are looking into boosting green investments and loans by introducing a so-called green supporting factor. This could be done at first by lowering capital requirements for certain climate-friendly investments, such as energy-efficient mortgages or low-carbon cars. However, green does not mean risk-free. Any measures would have to be carefully calibrated and based on a clear EU classification, to avoid the risk of green-washing.
So these are some examples of the measures we are considering as part of our upcoming Action plan.
But to conclude my speech today, I would like to remind you that the European Union cannot drive this important change to our financial system alone. We need a world-wide coordinated effort. Time is now ripe to put in place the proper conditions and incentives for sustainable finance across the sector, in Europe and globally.
This is how green investments can continue their growth. This is how sustainable finance can reach its true potential. And this is what our Action Plan next month will be about.
Thank you very much.