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Erscheinung:22.09.2020 | Topic Sustainability Making sustainability measurable
The European Union recently established a common classification system to offer investors incentives for sustainable investments – the taxonomy. It is addressed to all financial market players, including banks and insurers.
The historic years are still far away: The EU aims to achieve the Paris Agreement's climate protection targets by 2030, i.e. reducing emissions by at least 40% compared to 1990 levels. Its ultimate aim is to be climate-neutral twenty years after that, by 2050. On this timeline, 22 June 2020 was not an insignificant day. It was on that very Monday that the Taxonomy Regulation was published in the Official Journal of the European Union.
This piece of legislation has enabled the EU to create the world's first-ever “green list” for sustainable economic activities. This means – as the European Commission states – it is a new common “classification system [...] that will create a common language that investors can use everywhere when investing in projects and economic activities that have a substantial positive impact on the climate and the environment”.
Financial undertakings such as asset managers, insurers and banks also come into play here. European policymakers have made it clear on multiple occasions that they believe the financial sector has a responsibility in the transition to the age of sustainability. The European Council estimates the figure needed to fill the energy sector investment gap alone, which must be closed to achieve the Paris Agreement's climate protection targets, at EUR 180 billion per year.
The taxonomy does not constitute an obligation to invest in sustainable projects or offer 'green capital relief' for such investments. In BaFin's view, this would also be the wrong approach. Its Guidance Notice on Dealing with Sustainability Risks, the final version of which has already been published, in contrast to the ECB guide, which is still open for consultation, lists non-binding procedures.
In a recent video interview with Professor Fred Wagner from the Institute of Insurance Sciences (Institut für Versicherungswissenschaften) at the University of Leipzig, BaFin President Felix Hufeld stated again that it is neither acceptable nor permissible to present financial behaviour, financial products or institutions as having a lower level of risk just by referring to them as green, or conversely, to guide investors to favour green activities by playing down their actual level of risk.
The disclosure of climate-related information should be considered independently. In general, BaFin advocates transparency in this respect. It also welcomes the fact that in future, large insurers and banks, who are already obliged under the CSR Directive to disclose non-financial information, must also state in their management reports how and to what extent their activities are linked to environmentally sustainable economic activities. Investment funds and other financial market participants that label their products “environmentally friendly”, for example, must in future provide information on the portion that is taxonomy-compliant. The details will be clarified in relevant delegated acts.
Delegated acts are the next important step following the agreement process between the European Council, the European Parliament and the European Commission. An expert platform consisting of 57 representatives of all stakeholders is to support the European legislators in the process. The Taxonomy Regulation is to be applied from 1 January 2022.
Interview :“Flexible system tied to behaviour”
Frank Pierschel, Chief Sustainable Finance Officer at BaFin, on the European Union's Taxonomy Regulation.
Mr Pierschel, does the Taxonomy Regulation make it absolutely clear what constitutes green financial investments?
Yes, but indirectly. There is one thing you should know. The taxonomy focuses on activities, not on specific financial instruments. From my point of view there is no other way. For instance, are equities per se green or brown? Neither one nor the other. It depends on what the company produces and how. And this may well change over the years for businesses capable of adapting. We need a flexible system in order to make the biggest structural change since the Industrial Revolution tangible in some way. And in my opinion, this can only be tied to behaviour.
The taxonomy is a major political consensus. Despite that fact, it certainly does not only have supporters...
Companies with less taxonomy-compliant business models certainly have no interest in a list of green economic activities. And greenwashers will likely find it more difficult in future to sell brown products as green. But here too, it is still ultimately up to the consumer. The better informed they are, the more easily they can spot such marketing tricks.
The rules do not go into effect until 1 January 2022. What do companies and BaFin have to do until then?
Companies under our supervision can align their strategies and portfolios to the uniform taxonomy and thereby achieve greater sustainability in investments. Of course that is their own decision because the taxonomy ultimately only requires them to disclose investment behaviour. But even disclosure requires preparation. And that, by the way, is also true for us as supervisors: BaFin must use the remaining year and a half to familiarise itself with the taxonomy as well and to develop strategies for tackling the first taxonomy report cycle in 2022.
Author
Sören Maak-Heß
BaFin Division for Speeches and Publications
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