The European Association of Co-operative Banks (EACB) is closely following the European Commission work on sustainable finance as this is a very important workstream for the EACB members due to the fact that co-operative banks, being local and regional banks, play a key role in sustainable financing. This is via sustainable investments or savings products, energy transition project financing, green financing to SMEs and energy efficiency financing of private and public buildings or via their social mission: reinvesting significant portions of available profits back into the community. Some co-operative banks are leaders in green bonds. Numerous awards for institutions from the cooperative banking sector are the evidence of this guiding role and also the daily financing of sustainable projects in various regions are part of our business model
This being the case, the EACB and its members would like to once more stress that expressly support all political targets for creating sustainable and climate-friendly regulatory frameworks. These can be achieved via diverse measures to which public authorities, private households and companies should contribute.
As the natural next step in achieving these goals, the European Commission published on 8 March its Action Plan on ‘Financing Sustainable Growth’ which was very much welcomed. In May 2018, the Commission adopted a package of measures implementing several key actions announced in its action plan on sustainable finance. One of these measures concerns a Proposal on amending the delegated acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD) to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients.
In this context, we support the need to raise awareness on this issue and are taking steps towards this direction. However, the EACB is concerned by the European Commission’s intention to amend the MiFID II and IDD delegated acts and the relevant ESMA’s guidelines in order to mandatorily incorporate ESG preferences and factors in the suitability test/process at this point in time. Other elements of the Commissions package such as the Taxonomy or disclosure requirements on how for example issuers integrate environmental, social and governance (ESG) factors in their risk processes (‘Disclosure & Investor Duty’), could be the starting point- that is more towards these issuers rather that non-professional retail investors. This is all the more so, as the first task would in any case have to be to include ESG information regarding the products (at asset manager level with details) that will allow to make the link with client’s preferences.
Please see attached documents for our detailed comments.
- Proposed way forward
In order to do this right, avoid unintended consequences and market disruption, avoid unnecessary burden and costs, and ensure legal certainty we urge the European Commission to reconsidered its timetable for the implementation of the action plan on financing sustainable growth in this regard.
Amending the delegated acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive (IDD) to include ESG considerations into the advice that investment firms and insurance distributors offer to individual clients in a mandatory way should only be considered once a taxonomy has been established.
We would urge the Commission to finish the taxonomy first and afterwards introduce amendments to the suitability requirements where necessary- allowing for enough time to implement these. A timeframe of at least 18 months from the time the taxonomy has been established would be considered adequate in that regard. Indeed, it is crucial to link the start of the transitional period to a complete Taxonomy.
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