The European Commission has unveiled its Renewed Sustainable Finance Strategy, aimed at equipping the financial sector with the necessary policy frameworks to facilitate businesses’ transition toward sustainability in light of the Covid-19 recovery.
Adam Farkas, Chief Executive of the Association for Financial Markets in Europe (AFME), commented on the renewed strategy, stating, “Europe’s proactive stance on sustainable finance has led to numerous ambitious regulatory proposals. The upcoming phases of the sustainable finance agenda will be crucial in mobilizing private investments essential for achieving the EU’s sustainability goals.”
The European Commission’s updated strategy aligns with the objectives of the European Green Deal investment plan, introducing measures designed to enhance sustainable investments from both private and public sectors. It builds upon earlier initiatives, such as the Commission’s 2018 action plan for financing sustainable growth and insights provided by the Technical Expert Group on Sustainable Finance (TEG).
Farkas further emphasized the importance of a more inclusive approach to categorizing transition activities, stating that “broadening the classification criteria could significantly accelerate Europe’s journey toward achieving net-zero carbon emissions by 2050.” He noted that the Renewed Strategy’s acknowledgment of the need for an improved EU Taxonomy framework to recognize investments in intermediary steps toward sustainability is highly valuable. A comprehensive transition framework should not only encompass low-carbon activities and entities but also be forward-looking, accounting for firms that show commitment and potential for sustainable transition within scientifically determined thresholds.
Looking ahead, capital markets are expected to play a pivotal role in the green transition. According to AFME, it is estimated that 35% of the funding required to meet the Paris Agreement goals will come from equity, with 44% sourced from loans and 21% from bonds.
Despite the substantial growth in the green bonds market across Europe, there is a pressing need for climate finance to expand across all asset classes.