Proposals for recognition of transition finance in the EU legislation:
EBF response

Proposals for recognition of transition finance in the EU legislation: EBF response
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BRUSSELS, 11 March 2021 — The EBF provides a response to the six questions of the European Commission addressed to the EU Platform on Sustainable Finance in its call for advice on financing transition. We have identified several concrete possibilities for adjustment to the EU Taxonomy framework and related regulatory acts that could create more appropriate incentives in a practical way and recognize the alignment of financial institutions’ portfolios with the goals of the Paris agreement.

Commission request to the EU Platform on sustainable finance to provide advice on financing transition (europa.eu)

Key points:

• Despite the attempts to recognize certain transition efforts in the EU Taxonomy, these are not sufficient to support the EU objective to promote the transition of the whole economy. The EU Taxonomy leaves as “non-aligned” a vast majority of the EU economy, without differentiating between activities/companies that have a credible transitioning path, from others that have not yet adapted their business strategies.
• As repeatedly affirmed by financial regulators, notably in the context of the Network for Greening the Financial Sector (NGFS), banks’ contribution to climate-related policies is to finance the greening of the economy, and not only the green economy.
• The EU Taxonomy must be complemented by an approach that allows assessment of a company alignment with net zero 2050 objectives. This requires adding to the current EU Taxonomy framework, which defines “what is green”, an additional, forward-looking dimension, defining “what is greening.

• Financing for companies that are aligning their activities with the EU climate targets should be considered under the concept of “transition financing”. Some key sectors not covered in the EU Taxonomy framework or activities not covered yet should also be considered as “transition aligned”.
• There are several options to properly consider the transition in the EU framework. The following options should be considered cumulative or possibly also in combination of several options:
  • 1) Extend the current 5-years CAPEX to 10 years, and tailor it as a function of activities while still comparing with 2050 taxonomy thresholds
  • 2)  When looking at a 5/10y CAPEX programme, comparing this target with new thresholds calibrated at the 2030 horizon, as an intermediate target, aligned with the -55% objective set by the Commission by 2030
  • 3) Include a reference to 2050 business alignment commitment, according to a methodology duly validated by a third party recognized entity including at company level

• Finally, a simplified and proportional approach to the EU Taxonomy should be introduced for SMEs.