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I am very happy to be with you, even if only virtually.
The Irish Climate Finance Week is now in its third year. In that time it has become a well-established event demonstrating the role played by Ireland in mobilising the financial system to provide the resources for the climate transition.
As the new Commissioner for Financial Services, Financial Stability and the Capital Markets Union, I’m delighted to take part today.
Sustainable finance is one of my top priorities in my new role.
I believe that sustainable finance, and the renewed strategy on sustainable finance that the Commission is preparing, will play a significant role in rebooting the European real economy.
Context: COVID-19 crisis, recovery, sustainability
Two developments have dramatically changed the finance landscape over the past year.
First is the European Green Deal, which is a top priority for the Commission. The EU is determined to achieve climate neutrality by 2050 and reduce emissions with more ambitious 2030 targets.
We also have a set of major reforms on broader environmental objectives:
- the circular economy,
- zero pollution,
- the renovation wave,
- sustainable and smart mobility, to name just a few.
Second is, of course, the COVID-19 crisis, which has destabilised our economies and our societies, not to mention our health care systems.
Some have reacted by labelling “sustainability” as a luxury that’s only possible when times are good. They say we should postpone action on sustainable finance until the crisis has passed. They see only a “status quo” recovery.
Let me be very clear: the Covid-19 crisis cannot be used as an excuse to delay addressing the challenges of climate change, environmental degradation and biodiversity loss.
We should look at the European Green Deal as a green and sustainable growth strategy that can strongly contribute to our recovery.
Delivering on the Green Deal requires mobilising at least half a trillion euros per year of additional investments in the EU.
These investments will be a source of new economic and employment opportunities, and will help us recover from the crisis. These investment needs have only increased as a result of the Covid crisis.
The NextGenerationEU recovery package presented by the Commission in May will mobilise 750 billion Euros to help Member States.
The design of the recovery package makes sure that this extraordinary public stimulus will accelerate the green transition and digital transformation.
President Ursula von der Leyen announced in her State of the Union speech last month that 37 per cent of NextGenerationEU will be spent directly on European Green Deal objectives.
She also set a target of 30 per cent of the NextGenerationEU fund to be raised through green bonds.
We are taking green financing to the next level. The momentum for sustainable finance could not be better.
Achievements until now
Let me take a step back, and review the tools we already have at our disposal.
The Commission presented its first Action Plan on Financing Sustainable Growth in 2018.
As a result, we have put three important pieces of legislation in place:
- the taxonomy regulation;
- the disclosure regulation;
- and the climate benchmark regulation.
These provide markets with powerful new tools; they foster transparency and improve the integrity of the rapidly growing market for sustainable financial products.
Technical work is ongoing to complete their implementation.
I am pleased to see that this work is making a difference on the ground. Many of you are starting to use these powerful tools or think about how you can start to use them, which is very encouraging.
The Commission is preparing the delegated act on climate taxonomy, to provide companies and investors with criteria to identify activities that contribute to climate mitigation and adaptation. We want to adopt this by the end of the year.
The second delegated act on taxonomy for the other four equally important environmental objectives – circular economy, pollution, biodiversity, and water and marine resources – will be adopted by the end of next year.
Europe is already leading the world with ambitious policies driving the transformation of the financial sector. We need this, and we need it fast.
We want to integrate sustainability at every step of the financial value chain.
Renewed Sustainable Finance Strategy
This is why the Commission is preparing a renewed Sustainable Finance Strategy for early 2021.
The 650 responses to our consultation show that expectations from citizens, companies and financial institutions are very high.
While the specific actions are still being developed, I can assure you that the renewed strategy will be ambitious and comprehensive.
It will build on our 2018 Action Plan and explore new ways to mainstream sustainability in the financial and corporate sectors, in Europe and globally.
The strategy has to deliver three things.
First, it needs to strengthen the foundations for sustainable investment by creating an enabling ecosystem.
- One tool is the upcoming review of the Non-Financial Reporting Directive to enhance sustainability disclosures by corporates.
- Another focus will be examining how sustainability ratings work and promoting long-termism in investments.
- We need to better connect long-term targets with short-term actions, while bringing clarity on transition pathways in the meantime.
Second, we need to increase opportunities for citizens, financial institutions and companies to have a positive impact on sustainability.
- How can we mobilise retail investors and citizens? How can pensions and savings be invested for the benefit of the next generations?
- We should also look at how to better align toolkits supporting private and public sector investments. We need to create the right incentives so private capital flows to where it is needed, and we have to make it harder to finance activities causing significant harm.
- To accelerate the green transition, we will develop a reliable, voluntary EU Green Bond Standard – with a legislative proposal in the first half of next year.
Third, climate and environmental risks need to be managed and fully integrated into financial institutions and the financial system as a whole, so we move from funding harmful activities, to funding green, more sustainable ones.
This will strengthen the resilience of the system, and it will mean we are better prepared for future crises.
- The interaction of climate, environmental and other risks could result in substantial shocks in the century ahead - wildfires, storms, drought, crop collapses; not to mention the risk of pandemics.
- This, combined with biodiversity loss and climate change, could cause damage to our financial system.
- That is why stress testing, scenario analysis of risks and developing a new framework to keep risks manageable will be key.
- Here we will be inspired by the important work of the Network for Greening the Financial System.
In addition – the COVID crisis reminds us that we cannot leave behind the social, the “S” of ESG.
We want to make the social element more important in our Strategy. The public and private sector experts in the Platform on Sustainable Finance are assessing how a social taxonomy could work.
The Commission will also put more emphasis on the “G” – governance, via a new initiative in 2021 on sustainable corporate governance.
Finally, we need more attention on the global dimension.
A year ago, we established the International Platform on Sustainable Finance: a group of like-minded jurisdictions representing about half the global population, half of global GDP and half of global emissions.
The Platform works to understand the various emerging frameworks and how they can converge.
We celebrated the first anniversary of this initiative two weeks ago and published a report on progress so far and the next steps.
In parallel, we’re continuing to work on the relevance of the sustainable finance agenda for developing countries that are already severely impacted by the consequences of climate change and environmental degradation.
We need to support these countries in their transitions and mitigate negative effects as much as possible.
In closing, I want to highlight that Ireland is at the forefront of developing innovative sustainable finance policies.
Ireland has been very active in developing a clear strategy, stimulating the market by issuing green sovereign bonds, and playing a leading role in the International Network of Financial Centres for Sustainability.
More recently, Ireland’s initiative for improving skills and expertise for greening the financial system is setting an example for others to follow.
Your dynamism and support are a chance for the EU to make sustainable finance mainstream and have a transformative impact on our society and on the planet.
I look forward for cooperating closely with you all for an ambitious renewed sustainable finance strategy.
I wish you all a very fruitful event.