Regulatory background
UN and EU: driving sustainable development
The EU Action Plan is rooted in the political goals set out by the United Nations – specifically the 2030 Agenda for Sustainable Development and the Paris Agreement. Both were adopted in 2015, with various bodies and expert groups convening in recent years to discuss how to implement them. In light of this, the EU has undertaken to meet the following climate and energy goals by 2030:
Reduction of greenhouse gases by at least 40 percent as compared to 1990
Increase in share of energy from renewable resources to at least 32 percent
- Increase in energy efficiency by at least 32.5 percent
The EU will be required to invest massive sums of money to achieve these goals. According to the European Investment Bank, the transformation of the energy, transport, water and waste sector is going to cost roughly EUR 270 billion a year. The financial sector – which has a global volume of more than EUR 100 trillion – is going to have to play a bigger part in financing these sums in the future. The main task is going to be to focus on steering these funds towards sustainable investments.
The EU Action Plan
The role of the financial sector: more money for climate protection
Under the leadership of the European Commission, an action plan has already been developed for the financial sector. That plan focuses on three central sustainability goals:
Reorienting capital flows towards sustainable investments
Giving due consideration to and managing sustainability risks
Promoting transparency and long-termism
The EU Action Plan will be implemented in stages over the coming years through several European legislative initiatives. However, we have already seen the first indications of how these initiatives will take shape. Both MiFID II and the IDD will be amended to include key sustainability aspects to be considered when making investment recommendations. In addition, there will be certain new rules and regulations.
The three legislative proposals below have been mooted as a core element of the EU Action Plan:
Taxonomy Regulation: Introduces a uniform classification system to assess sustainable economic activities based on largely quantitative criteria
Disclosure Regulation: Expands disclosure obligations in connection with investment decisions and their environmental and social impact
Benchmark Regulation: Introduces the "EU Climate Transition Benchmark" and the "EU Paris-aligned Benchmark" as well as new ESG factors for index providers
The German federal government has already expressed its clear support for the EU's proposals. The aim is to make Germany a leader in sustainable finance. Both the creation of a "Green Cabinet" and the issuance of concrete recommendations by the federal government's Sustainable Finance Council underscore this commitment.
And BaFin has also already published a number of articles and papers on this matter. The regulatory requirements arising in connection with the EU Action Plan will have far-reaching implications for the business activities of all financial market participants. Although it is not possible at the moment to know just what these implications will be, banks and insurers should now be grappling with those changes that are already foreseeable. PwC's sustainable finance experts can help you to develop and implement the relevant measures.
The European Green Deal
Roadmap to sustainable growth
Aside from the EU Action Plan, the European Commission has also announced the "European Green Deal", which is also going to have a considerable impact on the financial sector. Although it remains to be seen which rules and regulations will be enacted for the financial markets in connection with the Green Deal, one thing is certain: fundamental change is on the horizon for the European economic system. The Green Deal sets out a roadmap to sustainable growth by reducing atmospheric CO2 by at least 50 percent by 2030 (the current target is 40 percent), enacting a European climate protection law and implementing measures to promote clean energy, a circular economy, sustainable mobility, coordinated agriculture policy and biodiversity.
The investment programme has a volume of roughly EUR 1 trillion. However, such an amount cannot be raised without the private sector. That's why the European financial system needs to be reoriented more towards green investment. It also goes without saying that the European Green Deal will entail further, stricter rules and regulations. Sustainable Finance also offers financial service providers the opportunity to prepare for this in good time.
