4 QUESTIONS FOR…
Hans Biemans, Head of Sustainable Markets at ING, on the Commission Platform on Sustainable Finance
BRUSSELS, 26 April 2023
On 8, February 2023 the European Commission announced the members for the new mandate of the Platform on Sustainable Finance. In this interview, we ask our newly appointed EBF member of the Platform about the upcoming work that will be performed to advise the Commission on the EU Taxonomy and the EU sustainable finance framework more broadly.
- What role do banks play in transition and why is it important for banks to contribute to the work of the Platform on Sustainable Finance at this particular stage? What can the Platform expect from the EBF?
Banks are one of the catalysts of the climate transition. Banks have to actively manage physical and transition risks in their portfolio, and hence are working towards decarbonizing their balance sheets. Indeed, many banks have also already made voluntary commitments to do so. Active management means, having a dialogue with clients on where they are with respect to their climate plan. In this respect, the EU Taxonomy can provide a useful tool for such a dialogue with the science-based Taxonomy criteria having been designed considering a 1.5-degree pathway. The EBF has recently published a position paper on transition finance, where it goes into more detail on what is still needed to have a fruitful engagement with clients on how to make their business more sustainable and the EBF will surely bring in this view.
I would see great benefit in the Platform members not only assessing how to ensure that the taxonomy for “green” activities is usable and effective also via simplification, but also considering the broader picture and in particular transition finance. More precisely, the Platform is expected to take a close look at the current sustainable finance framework and could use this opportunity to see how the framework can enable transition finance and whether it will need to be complemented to do so. In this respect, banks can provide insight on their efforts and the obstacles faced when discussing transition with their clients.
- Following the first meeting of the Platform, what can we expect to be the Platform’s key areas of focus over the next two years?
The key areas of focus will be usability, coherence and effectiveness of the sustainable finance framework, and possibly including a view on the application of the Do No Significant Harm (DNSH) criteria, which so far represents one of the main implementation challenges faced by the users of the Taxonomy Regulation. In addition, new technical screening criteria for mitigation activities which are not yet covered by the Taxonomy Regulation, and criteria for the other environmental objectives will likely be developed. Last but not least, another dedicated group will work on the monitoring of capital flows into sustainable investments to provide an overview of the impact of the current sustainable finance framework.
- There are still many questions on how to determine Taxonomy alignment which the Commission is trying to address via a series of FAQs. The previous Platform also drafted a report identifying usability and data issues as well as recommendations for the EC to consider. What are, in your view, the key challenges and how could the Platform help in addressing the outstanding usability issues?
Simplification is a key area to work on, within the legal limitations that exist. Of course, there are clear areas where bank reporting could be simplified without jeopardizing the criteria or overall ambition. The final objective is to ensure the usability of the EU Taxonomy’s technical screening criteria, which should be practical and easy to apply as to avoid undue administrative burden not only for the financial industry, but also for corporates. A concrete example of where simplification for the sake of usability would be beneficial is the implementation of DNSH criteria. This will likely be a topic to be looked at closely from different angles, including for instance the treatment of DNSH in reporting for financial products, how the relevant information can be gathered and how to apply these criteria when considering extra-EU operations.
- Finally, what are your hopes in terms of outcomes from the Platform’s work over the next two years?
I hope that we can make the sustainable finance framework more effective as a whole. The taxonomy is a platinum standard, but in order to motivate people to sign up and improve their existing activities you may also need gold, silver and perhaps even bronze standards. Would we have the Olympic games if there were only a gold medal to be won? Probably not. If you perform very well and you receive recognition for that performance via a bronze medal, then this will generate the motivation needed to strive for silver the next time around. The Commission has asked to come up with good practice examples from all industries of the integration of sustainability into core business, which goes beyond the mere application of the Taxonomy. Finding ways to make the sustainable finance framework overall more effective requires a critical look at what we have, and creativity to make it simpler and as practical as possible, while maintaining an equally high ambition to be net zero in 2050.
For more information:
Alexia Femia, Financing Sustainable Growth Adviser, email@example.com