The European Fund and Asset Management Association (Efama) has largely welcomed the European Commission (EC)’s consultation on a Renewed Sustainable Finance Strategy, emphasising the need to consider the impact of the covid-19 while also not forgetting sustainable goals.
EC announced on 8 April the Renewed Sustainable Finance Strategy with actions points to step up the drive of private capital towards sustainable investments remarking that financial sectors will have to undergo a “large-scale transformation”.
It highlighted that in order to meet climate neutrality by 2050 and its other climate action and environmental policy ambitions as part of the EU Green Deal, “massive” investment efforts across all sectors are required but “the financial system as a whole is not yet transitioning fast enough”, it said in the consultation document.
“Substantial progress still needs to be made to ensure that the financial sector genuinely supports businesses on their transition path towards sustainability, as well as further supporting businesses that are already sustainable,” it continued.
The document also said the ongoing covid-19 outbreak “shows the critical need to strengthen the sustainability and resilience of our societies and the ways in which our economies function”.
The Renewed Sustainable Finance Strategy will predominantly focus on three areas:
1. Strengthening the foundations for sustainable investment by creating an enabling framework, with appropriate tools and structures. Many financial and non-financial companies still focus excessively on short-term financial performance instead of their long-term development and sustainability-related challenges and opportunities.
2. Increased opportunities to have a positive impact on sustainability for citizens, financial institutions and corporates. This second pillar aims at maximising the impact of the frameworks and tools in our arsenal in order to “finance green”.
3. Climate and environmental risks will need to be fully managed and integrated into financial institutions and the financial system as a whole, while ensuring social risks are duly taken into account where relevant. Reducing the exposure to climate and environmental risks will further contribute to “greening finance”.
Strength and resilience
Efama’s director general, Tanguy van de Werve, said the association welcomes the launch of the “comprehensive” consultation, even at a time when companies are in “survivial mode”, and the topic remains “rightly very high” on the EU agenda.
“We agree that the current covid-19 crisis underlines the need to strengthen the sustainability and resilience of our societies, van de Werve said.
“For that, the sustainable finance strategy needs to carefully consider the impact the pandemic crisis has on our society and economies and the financing needs it will create. We need a balanced transition that allows appropriate distribution of resources across the different sectors. We cannot afford leaving behind part of the economy or of society.”
In its initial reactions, Efama said a framework to integrate sustainability is already in place thanks to the 2018 Sustainable Finance Action Plan. However, as many legislative proposals were “developed in parallel, some inconsistencies and gaps have emerged”. It suggested the EC’s renewed strategy needs to make the new rules work in practice, in a “well sequenced, consistent and coordinated manner”.
Efama also said while the world moves through the current crisis, it may prove necessary to focus on the ‘S’ factor and in particular human capital and societal imbalances.
“The virus outbreak has exposed the flaws in our societal systems and will likely exacerbate the divide further, with more job cuts especially at the low-skilled and low-pay end of the market,” Efama said.
However, it also questioned whether this is the right time to dedicate a lot of efforts on the ‘G’ factor, especially given the existence of corporate governance and stewardship codes.
Make it work
Efama welcomed the EC’s intention to improve ESG disclosure by investee companies, as well as the market for ESG data and ratings.
“Robust, reliable and publicly available ESG data on investee companies is essential to make sustainable finance work in practice.”
It also said facilitating cross-border voting and providing investors with more tools and means to better perform their role as stewards of the companies they invest in, is “key in developing sustainability and more long-term focus in capital markets”.
Nonetheless, Efama added financial literacy and promoting sustainability awareness were somewhat sidelined in the consultation, despite being “key for unleashing the full potential of sustainable finance”.
“While asset managers play an important role in providing investors with the information they need to make informed decisions, ultimately it is the investor who makes investment decisions,” the association said.
A detailed Efama response will be filed by the consultation deadline of 15 July 2020.