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Introduction

Recently, the EU made substantial policy announcements including the launch of the European Green Deal Investment Plan, the Circular Economy Action Plan and the initial consultation on the revision of the Non-Financial Reporting Directive. In addition, the Technical Expert Group on Sustainable Finance made final recommendations on the EU Taxonomy and released an additional Usability Guide for the proposed EU Green Bond Standard.

The EU has sought a global leadership role on sustainability. Private finance is critical to the realisation of the EU’s sustainability ambitions. Despite the ongoing disruption caused by the COVID-19 pandemic, climate ambition remains high on the EU’s agenda and the forthcoming revised Action Plan on Financing Sustainable Growth seeks to be the most ambitious plan of its kind in the world.

Executive summary

The PRI’s report sets out recommendations to ensure that investors can scale up their contribution to the EU Green Deal and sustainability goals more broadly. The report is part of a research programme run by the PRI throughout 2019 and early 2020, drawing from interviews with investors and the PRI’s own programmatic research.

In January 2020, The PRI published a briefing paper and set of interview questionsand undertook a literature review of existing recommendations, taking into account the final report of the High-Level Expert Group on Sustainable Finance, the European Parliament’s own initiative report on sustainable finance, the PRI’s Sustainable Financial System analysis and programmatic research and others.

Recommendations were assessed on the likely impact, the alignment with the PRI’s theory of change and mission, and the intended target audience (only those where the EU or Member States can act were selected for further analysis).

Summary of recommendations

CLIMATE, LEADERSHIP AND THE REAL ECONOMY

  • Provide the necessary certainty and clarity for investors in the drafting of the EU Climate law, and ensure high standards of technical rigour

  • Ensure that existing instruments intended to provide incentives for transition support the necessary transition of high-emitting sectors

  • EU should use its leverage as a global sustainability leader and major economic power to advocate for global ambition on sustainability

DISCLOSURE AND TRANSPARENCY

 

  • Within the NFRD revisions, ensure that ESG data is disclosed together with traditional elements of corporate and financial reporting and released at the same time; including a core set of mandatory ESG KPIs; Third-party assurance over ESG data and KPIs should be required; the NFRD is aligned with TCFD recommendations

  • In developing an EU Non-Financial Reporting Standard, build upon existing standards and provide a coherent vision for how existing standards can and should work together; Provide the basis for international dialogue around global harmonisation of reporting standards

PUBLIC AND PRIVATE FINANCE

 

  • Develop enabling frameworks supporting the “crowding in” of private finance

  • Strengthen sovereign guarantees to unlock public/private finance collaboration

  • Further develop technical assistance to project promoters to advance the pipeline of investable projects and aggregation of projects to reach the scale necessary to enable institutional investment

  • Review the role of public-private partnerships and consider whether improvements in transparency and measurement criteria could increase their contribution, where appropriate

STEWARDSHIP

  • Set an aspirational (non-binding) standard for outcomes-focused stewardship and develop and encourage adoption of a standard for system-level stewardship

  • Revise or supplement the Shareholder Rights Directive II

  • Further develop ESMA guidance and work with national regulators to ensure acting-in-concert and anti-trust regulations do not impede collaborative engagement by investors around common sustainability goals

EU TAXONOMY

  • Explicitly align the EU Taxonomy with the EU’s net-zero aligned trajectory to give clarity and certainty around the expected evolution of the technical screening criteria

  • Prioritise development of the Taxonomy to include activities that can make a substantial contribution to social issues, resulting in a tool which will allow investors to map their contributions against the Sustainable Development Goals

  • Work towards a common approach for global Taxonomy development, building from the TEG’s principles for Taxonomy harmonisation

 

european_climate_foundation

This report is supported by the European Climate Foundation.

 

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