On 7 March 2018, the European Commission released an action plan for financing sustainable growth. The plan is a response to recommendations from the High-Level Expert Group (HLEG) on Sustainable Finance, which were submitted to the Commission on 31 January 2018. 

Nine PRI signatories were members of the HLEG. The PRI served as an Observer, providing technical input on many of the recommendations.

The PRI issued an initial assessment of the 10 reform areas in the action plan. The Commission has committed to a timeline for implementation of the reforms, with the first legislative proposals published in May 2018. 

In this second version, we update the assessment to include the first legislative measures proposed by the Commission to implement four of the actions set out in the action plan, namely taxonomy, investment advice, sustainability benchmarks and investor duties.

Speaking at a PRI event held in Brussels in June 2018, European Commission Vice-President Valdis Dombrovskis introduced the first four actions proposed by the Commission. These actions are interconnected and relevant for all investors.

Working towards a sustainable financial system is consistent with the PRI’s Blueprint and Mission. The PRI welcomes the action plan and will continue to work with signatories and the European Commission to support its delivery through the accompanying legislative measures.

For more information on the action plan and the PRI’s sustainable financial system and policy activities, email policy@unpri.org.

The Action Plan outlines ten reforms in three areas:

The four legislative proposals adopted in May 2018 address several areas of the Action Plan.

Reorient capital flows towards sustainable investment, in order to achieve sustainable and inclusive growth

  • Establishing an EU classification system for sustainability activities
  • Creating standards and labels for green financial products
  • Fostering investment in sustainable projects
  • Incorporating sustainability when providing investment advice
  • Developing sustainability benchmarks

Mainstreaming sustainability into risk management

  • Better integrating sustainability in ratings and research
  • Clarifying institutional investors and asset managers’ duties
  • Incorporating sustainability in prudential requirements

Foster transparency and long-termism in financial and economic activity

  • Strengthening sustainability disclosure and accounting rule-making
  • Fostering sustainable corporate goverance and attenuating short-termism in capital markets

In the following pages, we explain the actions and the possible impact for investors

 

The four legislative proposals- an overview

In May 2018, the Commission adopted a package of measures implementing several key actions announced in its action plan on sustainable finance. The package includes:

1. Taxonomy 

A proposal for a regulation to establish a framework to facilitate sustainable investment. The proposed regulation establishes the conditions and the framework to create, over time, a unified classification system (or taxonomy) on what can be considered environmentally sustainable economic activities. This is widely seen as a first and essential enabling step in the overall effort to channel investments into sustainable activities.

2. Disclosure and duties

A proposal for a regulation on disclosures relating to sustainable investment and sustainability risks, amending Directive (EU) 2016/2341(IORP 2 - Pensions). This regulation will introduce obligations on institutional investors and asset managers to disclose how they integrate ESG factors in their risk processes. Requirements to integrate ESG factors in investment decision-making processes, as part of their duties towards investors and beneficiaries, will be further specified through delegated acts.

3. Benchmarks

A proposal for a regulation amending the benchmark regulation. The proposed amendment will create a new category of benchmarks, comprising low-carbon and positive carbon impact benchmarks, to help investors better understand the relative carbon impact of their investments.

4. Sustainability Preferences (consultation)

In addition, the Commission has solicited feedback on amendments to delegated acts under the Markets in Financial Instruments Directive (MiFID II) and the Insurance Distribution Directive to include ESG considerations into the advice that investment firms and insurance distributors offer to their clients.

 

Download the full report

  • Download report

    The European Commission Action Plan: An assessment of the reform areas for PRI signatories

    August 2018