Investors look ahead to ambitious EU agenda

Fund groups, investors and law firms are weighing up the readiness of EU member states to implement new rules relating to environmental, social and governance-based investments.

Top of the list is the introduction of the EU taxonomy, a framework designed to act as a catalyst for sustainable investment, through a set of criteria which clarify whether an economic activity is environmentally sustainable or not.

In December 2019, EU legislators finally signed off on the framework. They agreed that environmentally sustainable economic activities must:

1. Contribute to the transition to a circular
   economy, prevent pollution, protect biodiversity, or encourage sustainable environmental
   behaviours
2. Not harm environmental objectives
3. Comply with minimum social impact safeguards

Fund managers, banks and other issuers of financial products are poised to begin applying the taxonomy from July 2020. In the announcement just before Christmas policymakers agreed that further Technical Screening Criteria will now need to be established by the end of 2020.

In December, while trumpeting the agreement on the taxonomy, the EU also announced details of proposals for its new European Green Deal – its next project for the 2019-2024 term. The Green Deal includes proposals which will potentially change how investors value assets, such as the impact of current or future green taxes.

Further details on the European Green Deal are expected in the third quarter of 2020.  These will look specifically at how to embed sustainability into the corporate governance framework and how best to ensure companies improve their disclosure on ESG risks through the Non-financial Reporting Directive.

This week, we saw the EU unveil details of its Sustainable Investment Plan which aims to attract around some €1 trillion of investments to bolster climate neutrality across EU states.

The Plan is designed to stimulate private and public investments across the trading bloc and comes as stakeholders prepare to use the previously announced EU taxonomy from July 2020.

In announcing the new plan, Valdis Dombrovskis, Executive Vice-President for an Economy that Works for People, said the transition to a carbon-neutral economy needs political commitment and substantial funding.

“The Green Deal shows our determination to tackle climate
change, which we are now backing up with a funding plan,” he explained.

“First, we will use the EU budget to leverage private funds for green projects across Europe and support the regions and people most affected by the transition. Second, we will create the right regulatory incentives for green investments to thrive. Last but not least, we will help public authorities and market players to identify and develop such projects.”

Mr Dombrovskis said putting sustainability at the heart of
how people invest requires “a change of mindset.”