EU sets out rules for more sustainable financial system

Luxembourg Finance Ministry reaffirms support for European Commission recommendations

The EU High-Level Expert Group (HLEG) on sustainable finance has set out its final recommendations for a financial system that better supports sustainable investments.

The report proposes a number of action points, such as the introduction of a classification system to provide market clarity on what the term ‘sustainable’ means.

It also defines the duties of investors when it comes to achieving a more sustainable financial system and calls for the introduction of an EU-wide label for green investment funds and the creation of a European standard for green bonds (EU GBS).

In its final report, the HLEG is asking for more disclosure from companies on how they incorporate sustainability – and, more precisely, environmental, social and governance (ESG) considerations – into their business processes and operations.

The expert group also proposes to make sustainability part of the mandates of the three European Supervisory Authorities – the European Banking Authority (EBA) the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA).

Luxembourg finance minister Pierre Gramegna said in a statement that the publication of the report marked an “important milestone” and reconfirmed the country’s commitment to implementing the recommendations.

”Thanks to its financial services industry, focused on cross-border services and funds, Luxembourg is already today raising finance and channeling investments to sustainable, social and green projects,” he said.

Luxembourg for Finance (LFF) – the agency for the development of Luxembourg’s financial centre – also welcomed the HLEG report and said that, over the last decade, the Grand Duchy had developed into an international platform for sustainable finance.

“The country is today home to one-third of European responsible investment funds, and two out of three European impact funds and accounts for more than 60% of assets in microfinance funds worldwide, while half of the world’s listed green bonds are on the Luxembourg Green Exchange (LGX), the first dedicated platform in the world for sustainable, social and green securities,” LFF said.

Member of the Executive Committee of the Luxembourg Stock Exchange and HLEG member Julie Becker said the report identified “areas that urgently need action and gives concrete recommendations for the way forward”.

She also argued that the EU GBS standards provided a framework and enhanced transparency, integrity, consistency and comparability of the instruments.

Given the financial system’s complex policy and regulatory framework, she said, there is “no silver bullet to turn sustainability overnight”.

Nonetheless, financial services have a key role to play in reaching those goals, according to the European Comission, as “large amounts of private capital could be mobilised towards such sustainable investments”.

Around €180 billion of additional investments are needed every year to achieve the EU’s 2030 targets agreed in Paris, including a 40% cut in greenhouse gas emissions, the Comission said in a statement.

It said that, through the recommendations, the financial sector could “re-connect with the real economy to support the transition to a more resource-efficient and more circular economy”.

In recent years, Luxembourg has launched a number of initiatives supporting sustainable finance, including the creation of LuxFLAG – the sustainable finance labelling agency – in 2006; a partnership with the European Investment Bank to list the world’s first green bond on the Luxembourg Stock Exchange in 2007; and the launch of a climate finance task force and international finance accelerator.

The HLEG, created in December 2016 by the European Comission, comprises 20 senior experts from civil society, the finance sector and academia, as well as a limited number of observers from European and international institutions.

The group previously published an interim report on 13 July 2017 before releasing its final recommendations on Wednesday.