EBF advisor: Daniel Bouzas

Publication date: 06 September 2018

The EBF supports the Commission’s legislative proposals on sustainable finance based on its Action Plan for Financing Sustainable Growth. We welcome the choice of Regulation as the legislative vehicle for delivering these results. Establishing the key definitions that will shape our understanding of what is a sustainable economic activity and the steps that should logically follow need to happen within both a global context and the legal  framework of an appropriate harmonization process at EU level.

The major issues that we would like to highlight are:

• It is essential that the Commission defines and bolsters sustainable finance as part of the Capital Markets Union and takes into consideration banks’ voice given their valuable role in the investment and financing process.

Sustainable finance, as referenced in the Commission’s Action Plan appears a wider term than Sustainable Investment when thinking about a taxonomy that will embrace economic activities based on investment and lending. We understand that the current focus on sustainable ‘investment’ aims to inform investors’ decision-making, although it risks being interpreted as more limited in scope than the

• Commission may have in mind, taking into account the broad definition given to Sustainable Finance in the first place.
• Given the role of banks on sustainable finance, we take the view that the banking sector should be much more involved than has been the case so far in the process of development of the taxonomy, ensuring to include all stakeholders.
• We would favour the extension of the scope of the Regulation to cover other sustainability objectives, in particular social objectives from the earliest possible stage subject to the availability of reliable data. Broadening the scope from the inception of the taxonomy would ensure avoiding risks of efficiency losses, as internal models of Financial Institutions would need to be adapted every time a change is adopted.
  However, we support the progressive approach on the broadening of the scope as to recognise the urgency of environmental and climate issues, including the support to those not-yet sustainable activities in their transition.
• We would also recommend not to commence the work on social (and governance) issues at a too late stage as social issues are also critical if we are to have a holistic approach to sustainable finance from the outset.
• Besides being open to regular updates in response to market evolutions and stakeholders’ needs, the Taxonomy should be open to the possibility of being updated or to abide by a different (and better) set of rules subject to appropriate governance of the validation of such better set of rules. We believe that the proposals for regulation should elaborate on existing market practices where possible. Many of the existing market practices tap into the same sustainability data providers, which has contributed to some amount of consolidation in terms of what these taxonomies or sustainability frameworks look like. For an EU taxonomy to fit, an analysis of a shared common ground in existing market practices could benefit our common goals.