A report released this week by the European Court of Auditors (ECA) has lambasted the European Union for the slowness of its actions in promoting sustainable investment across the continent.
The findings looked at a number of areas and found systemic problems with the EU’s work, following the signing of the Paris Agreement in 2015 and the bloc’s own Sustainable Finance Action Plan (SFAP), which was established in 2018.
The auditors said they looked specifically at whether the Commission had been taking the right action towards sustainable investments, with their report focusing on whether the SFAP addressed key issues relating to sustainable finance, as well as doing this on time.
ECA member Eva Lindstrom said in an accompanying statement: “The EU’s actions on sustainable finance will not be fully effective unless additional measures are taken to price in the environmental and social costs of unsustainable activities. Unsustainable business is still too profitable. The Commission has done a lot to make this unsustainability transparent, but this underlying problem still needs to be addressed.”
Among the report’s findings was that “more consistent” EU action was needed to drive investment towards sustainability. The authors wrote: “While the Commission focused its actions on increasing transparency in the market, it has not accompanied those actions by measures to address the cost of unsustainable economic activities. In addition, the Commission needs to apply consistent criteria to determine the sustainability of the investments it supports from its budget and better target efforts to generate sustainable investment opportunities.”
On specific regulatory measures, the auditors said the planned actions did focus, correctly, on transparency, but that they suffered from delays and needed more work in order to become applicable. “In particular,” the authors wrote, “it has taken longer than planned to complete the common classification system for sustainable activities (the EU Taxonomy) that forms the basis for labelling financial products and standardising sustainability disclosures for companies. We consider that these measures will not be fully effective unless they are accompanied by sufficient measures to reflect the environmental and social costs of unsustainable activities.”
The report also noted there was less support for climate action in Central and Eastern Europe through the European Fund for Strategic Investments. The authors wrote: “We also consider that the EU has not been sufficiently proactive in supporting the development of a pipeline of sustainable projects and has not fully exploited the potential of National Energy and Climate Plans to identify sustainable investment opportunities.”
Another issue identified was financing. “We also found,” said the authors, “that there is no consistent and binding requirement on all activities receiving EU financing to apply the “do no significant harm” principle. In addition, there are no requirements in EU spending programmes, other than InvestEU, for assessing individual investments against social and environmental standards comparable to those used by the European Investment Bank.
“This means that insufficiently strict or differing criteria may be used to determine the environmental and social sustainability of the same activities funded by different EU programmes. Furthermore, many of the criteria used for assessing and tracking the EU budget’s contribution to climate objectives are not as strict and science-based as those developed for the EU Taxonomy.”
In conclusion, the auditors made six recommendations, calling on the Commission to:
- Complete the measures of the action plan and clarify compliance and audit arrangements;
- Better contribute to sustainable finance by pricing greenhouse gas emissions;
- Report on climate and environment related results of InvestEu;
- Increase efforts to generate a sustainable project pipeline;
- Apply the ‘Do no significant harm principle’ and the EU Taxonomy criteria consistently across the EU budget; and
- Monitor and report on the results of the action plan and any future strategies.