Building blocks for a more sustainable financial system

in Industry Insights, 05.02.2018

On 31 January 2018, the High-Level Expert Group (HLEG) on Sustainable Finance, set up by the European Commission in December 2016, delivered its final report and recommendations.

First and foremost: finance

It’s worth stressing that this report is not simply about a tiny share of the market that offers sustainable products and services—it’s about the financial sector, as a whole, transitioning to a more resource-efficient and more circular economy.

This report is required reading for any financial player serious about its future!

The key recommendations of the report are:

  • Establish and maintain a common sustainability taxonomy at the EU level.
  • Clarify investor duties to better embrace long-term horizon and sustainability preferences.
  • Upgrade disclosure rules to make sustainability risks fully transparent, starting with climate change.
  • Keep in mind the key elements of a retail strategy on sustainable finance, including investment advice, ecolabel standards, and SRI minimum standards.
  • Develop and implement official European sustainability standards and labels, starting with green bonds.
  • Establish a “Sustainable Infrastructure Europe” scheme.
  • Use governance and leadership to enable sustainability goals.
  • Include sustainability in the supervisory mandate of the ESAs and extend the horizon of risk monitoring.

Luxembourg’s commitment to implementing the recommendations

In Luxembourg, Finance Minister Pierre Gramegna described the report as “an important milestone [that] outlines the road towards a more sustainable financial system,” adding that “Luxembourg is committed to working with all the important stakeholders on the implementation of the various recommendations set out by the HLEG.”

Without a doubt, the HLEG report will have a wide and long-term impact on the financial sector in general, as it outlines the necessity of a common taxonomy, common standards, and a clearer overall policy and regulatory framework. Moreover, it aims to make sustainability disclosures mainstream across financial securities and stock exchange listing requirements.

The next step now will be a European Commission action plan on sustainable finance inspired and guided by the HLEG recommendations. Such a plan is expected to be presented in Brussels on 22 March 2018.

“Wait and see” will only turn into “Wait for me!”

These recommendations have not yet been translated into regulations, but they surely will be. A strategy of keeping your head down till you’ve finished implementing other regulations first would be risky—in my view, there unfortunately isn’t time to wait and see.

The KPMG Luxembourg Sustainability team has been closely following the work of the European Commission and will keep you posted regularly on the new developments. Watch this space for more!

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