Wednesday, 6 November, 2019
FEBEA, in collaboration with GABV and several networks and partners, is monitoring the development of the European Taxonomy for sustainable finance, part of the Sustainable Finance Action Plan, which is a first, preliminary step towards a real change in the financial system.
FEBEA has welcomed the sustainable finance action plan’s objectives, which are fully aligned with the ethical finance principles guiding the action of our members:
- mainstreaming sustainability in finance decisions;
- re-allocating capital towards sustainable causes;
- fostering transparency and long termism in finance.
The action plan’s objectives recognise indeed that all finance has an impact, and that it will require all financial market participants’ involvement to get to those objectives.
However, in the context of the current debate around the Taxonomy proposal and its scope of application, we have to acknowledge a major concern relating to the risk of creating a barrier rather than enabling a real shift towards sustainable finance.
In essence, the current Taxonomy proposal would apply reporting requirements only to those financial actors who are making efforts in sustainability, while disclosure would not be imposed where it is needed most: in activities which are not sustainable. In practice, funds and companies that intend to re-allocate money to more sustainable causes will be faced with costly reporting requirements and audit costs, while harmful and polluting funds and companies can continue business as usual.
Moreover, the granularity of the proposed criteria requires detailed auditing processes, which effectively means high reporting costs. Only big scale funds will be able to bear such costs, while smaller funds, especially those that fund the new, innovative, non-listed entrepreneurs, will not be able to afford such costs.
This is true also for investees, which will need to prove that they are actually eligible: for example smaller social economy enterprises will not be able to engage the resources required by the proposed reporting criteria. This is exactly the category of innovative companies that need funding for their contribution to sustainable development, but their funds will be crowded out by large funds of large listed companies.
FEBEA demands therefore the establishment of a level playing field between all financial actors, so that all funds are faced with the same reporting requirements on the degree of sustainable activities in their portfolios.
Only if all funds and all companies are required to be transparent about their impact on planet and people, then money may flow from brown to green activities. Only comparable information for all financial products implies that investors can make truly informed choices. In order to make a full scope application feasible, new requirements must be as simple and feasible as possible.
Finally, there’s the strong need for a classification for the activities which are not sustainable.
We urge the European Institutions to include in the Taxonomy Regulation a classification of non-sustainable activities as well.
We simply expect that the final Taxonomy regulation will reflect the original objectives of the sustainable finance action plan: reorienting capital flows towards sustainability, integrating sustainability in risk management, and fostering a culture of transparency and long-termism.
FEBEA is currently working with GABV in a joint effort to make these concerns heard by the EU institutions.
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Read more on this topic:
"The urgent need for a sustainable finance", by P. Sasia
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