I4CE welcomes the publication of the EU High Level Expert Group on Sustainable Finance’s Interim Report

The publication of the EU High Level Expert Group on Sustainable Finance’s Interim Report marks the end of the first phase of this group’s work – and the beginning of a much-needed dialogue with the European financial community as to why taking sustainability materially into consideration is essential.

In September 2016, the European Commission established the High-Level Expert Group (HLEG) on sustainable finance with the objective to provide a roadmap towards a sustainable financial system that fosters sustainability in economic, social and environmental developments. The creation of this group followed on the heels of the events in 2015 culminating in the Paris Agreement and the 2030 Agenda for Sustainable Development. In both processes, the important role the financial sector has to play to help meet both climate and sustainable development objectives has been increasingly brought to the fore – with UNFCCC Parties agreeing that all financial flows should be consistent with a pathway towards low-emissions, climate-resilient development (Article 2.1(c)).

Achieving both climate and sustainable development in practice will require substantial changes in both how the “real economy” and the “financial system” conducts business. In this interim report, the HLEG has in many instances focused on climate change as a pressing sustainability challenge that can provide examples for addressing the broader sustainability agenda. The report has taken both a bottom-up and top-down approach to sustainable finance, looking on one hand at what changes may be needed within the financial system – and on the other hand the role for EU regulatory and financial policy framework and key market participants and facilitators (although further attention – such as what role for Central Banks – could be given).

I4CE fully supports the report’s focus on the two imperatives of:

• Firstly, improving the contribution of finance to sustainable and inclusive growth, in particular funding society’s long-term needs for innovation and infrastructure, and accelerating the shift to a low-carbon and resource efficient economy.
• Secondly, strengthening financial stability and asset pricing, notably by improving the assessment and management of long-term material risks and intangible drivers of value creation – including those related to environmental, social and governance (ESG) factors.

The report’s preliminary recommendations advance in our minds in the right direction; however the next phase of the HLEG’s work will be essential to ensuring that both regulators and financial sector players will be able to work through often-used adage of ‘the devil is in the details’.

I4CE has supported this process through the provision of expertise to our President, Pierre Ducret, who participates in the HLEG as an observer for the Club of European Long-Term Investors. We will continue to work to contribute to the discussion that now must better precise the “what” and move concretely to address the “how”.

I4CE’s work in the area of green bonds focusing on how to increase their financial contribution to the low-carbon transition and improving the environmental integrity of the underlying green finance can offer insights into how to both foster the creation and uptake of sustainable assets – as well as ensure their quality.

Our recent publications on why and how it is imperative for the financial sector to better understand climate-related transition risks and adopt a strategy of alignment with a low-carbon, resilient scenario can provide insights on what information will be required in terms of extra-financial reporting from both financial actors themselves – as well as underlying assets. This is further supported with our work with two European consortiums of researchers – the ET Risk project on energy transition risks and the soon-to-be launched ClimINVEST project on physical climate risks.

Finally, the report calls for the creation of a new European Observatory to track sustainable investment needs and financial flows at both the EU and the member state level. We strongly support this recommendation and believe that our five years of experience in tracking climate-related investment and financial flows in France could inform the “development of a common language on methods and tools, to aggregate the data, to inform collective decision-making and to help to target further policy interventions (including public finance) in relation to climate change mitigation and adaptation that may be required.”

I4CE looks forward in the coming weeks and months to helping find the concrete solutions and compromises needed to make financial flows “coherent” with climate-related objectives – and do so in a fashion that addresses the pressing social and economic challenges faced in Europe and around the world in a truly sustainable – and acceptable – fashion for all.