EU action plan on sustainable finance

On 8th March 2018 the European Commission issued its Action Plan on sustainable finance. The objective is to achievea well-performing economy that delivers on environmental and social goals as well. The planis a part of the wider Capital Markets Union 's efforts and should also assist in EU's 2030 targets agreed in Paris, including a 40% cut in greenhouse gas emissions. The plan is based on the recommendations set out by the High-Level Expert Group on sustainable finance (HLEG) which consisted of 20 individual members with high professional expertise and other cooperating bodies and experts – see here. The HLEG´s issued the Final report on sustainable finance in January 2018.

The European Commission noticed that environmental and social considerations are often not sufficiently taken into account in investment decisions.A lack of clarity among investors regarding what constitutes a sustainable investment contributes to the investment gap and also an obstacle to financing the social infrastructure that is needed to address inequality and inclusiveness issues. European Commission stresses that retail investors increasingly want their investments to take into account climate, environmental and social considerations.

The main objectives of the plan include:

• Establishing a unified EU classification system – or taxonomy – to define what is sustainable and identify areas where sustainable investment can make the biggest impact.
• Creating EU labels for green financial products to easily identify investments that comply with green or low-carbon criteria.
• Clarifying the duty of asset managers and institutional investors to take sustainability into account in the investment process and enhance disclosure requirements.
• Requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability.
• Incorporating sustainability in prudential requirements for banks and insurance companies.