Sustainable finance is the provision of finance to investments taking into account environmental, social and governance considerations.
Sustainable finance includes a strong green finance component that aims to support economic growth while
- reducing pressures on the environment
- addressing green-house gas emissions and tackling pollution
- minimising waste and improving efficiency in the use of natural resources
It also encompasses increasing awareness of and transparency on
- the risks which may have an impact on the sustainability of the financial system
- the need for financial and corporate actors to mitigate those risks through appropriate governance
EU and global committments
The European Union is strongly supporting the transition to a low-carbon, more resource-efficient and sustainable economy and it has been at the forefront of efforts to build a financial system that supports sustainable growth.
In 2015, landmark international agreements were established with the adoption of the UN 2030 Agenda and Sustainable Development Goals and the Paris Climate Agreement. The Paris agreement, in particular, includes the commitment to align financial flows with a pathway towards low-carbon and climate-resilient development.
To achieve the EU's 2030 targets agreed in Paris, including a 40% cut in greenhouse gas emissions, we have to fill an investment gap estimated at 180 billion EUR per year.
The EU is already providing impetus to help attract the required investments with the European Fund for Strategic Investments and other initiatives. However, the scale of the investment challenge is beyond the capacity of the public sector alone. The financial sector has a key role to play in reaching those goals. It can
- re-orient investments towards more sustainable technologies and businesses
- finance growth in a sustainable manner over the long-term
- contribute to the creation of a low-carbon, climate resilient and circular economy
High-Level Expert Group on Sustainable Finance
The HLEG comprised 20 senior experts from civil society, the finance sector, academia and observers from European and international institutions. The group was mandated to provide advice to the Commission on how to
- steer the flow of public and private capital towards sustainable investments
- identify the steps that financial institutions and supervisors should take to protect the stability of the financial system from risks related to the environment
- deploy these policies on a pan-European scale
Commission action plan on sustainable finance
The recommendations of the HLEG form the basis of the action plan on sustainable finance adopted by the Commission in March 2018.
The action plan sets out a comprehensive strategy to further connect finance with sustainability. Its key actions include
- establishing a clear and detailed EU classification system – or taxonomy – for sustainable activities. This will create a common language for all actors in the financial system
- establishing EU labels for green financial products. This will help investors to easily identify products that comply with green or low-carbon criteria
- introducing measures to clarify asset managers' and institutional investors' duties regarding sustainability
- strengthening the transparency of companies on their environmental, social and governance (ESG) policies. The Commission will evaluate the current reporting requirements for issuers to make sure they provide the right information to investors
- introducing a 'green supporting factor' in the EU prudential rules for banks and insurance companies. This means incorporating climate risks into banks' risk management policies and supporting financial institutions that contribute to fund sustainable projects
To discuss its action plan, the Commission is organising a high level conference on 22 March 2018.