31 January 2018: The EU High-Level Expert Group on Sustainable Finance (HLEG) issued its final report and recommendations on integrating sustainable finance within the EU and broader global financial systems. The report will guide the Commission’s forthcoming action plan on sustainable finance.

The HLEG is a multi-stakeholder initiative established by the European Commission in 2016 to develop concrete measures for embedding sustainability into the EU’s financial system. Comprising members and observers from banking, insurance, asset management, stock exchanges, financial industry associations, civil society, international institutions, and other perspectives, the HLEG was mandated to provide recommendations to “hardwire” sustainability into the EU’s regulatory and financial policy framework, and accelerate the flow of capital towards sustainable development objectives, through an interim report published in July 2017 and a final report published in January 2018.

The final report titled, ‘Financing a Sustainable European Economy,’ was released on 31 January, and highlights the need for a long-term strategic framework for sustainable finance. It identifies eight priority recommendations:

• Establish and maintain an EU “sustainability taxonomy,” starting with climate mitigation, to define areas where investments are needed most;
• Clarify investor duties to better embrace long-term horizon and sustainability preferences, and ensure greater focus on environmental, social and governance (ESG) factors within investment decisions;
• Upgrade disclosures to make sustainability opportunities and risks transparent, beginning with climate change, including through endorsing and implementing the recommendations of the task force of climate-related financial disclosure (TCFD) at the EU level;
• Enable retail investors to invest in sustainable finance opportunities;
• Develop and implement official European sustainability standards and labels, starting with green bonds;
• Establish ‘Sustainable Infrastructure Europe’ to deploy development capacity in EU member states for infrastructure necessary for a more sustainable economy, including through accelerating high-quality infrastructure projects that meet the EU’s obligations under the Paris Agreement on climate change; and
• Integrate sustainability firmly in the governance of financial institutions as well as in financial supervision.

The report also provides several cross-cutting recommendations. including to: consider ways to empower citizens to engage with sustainable finance; improve financial market benchmark transparency and guidance; and drive sustainable finance at the global level, including through ensuring that sustainable finance is a key priority of future G20 and G7 meetings.

Among other findings, the report notes: the importance of sustainable finance in delivering a “just transition” to ensure net benefits for workers and communities connected to high-carbon, resource-intensive and polluting sectors; the importance of protecting, restoring and managing natural capital through measures including pricing externalities and urgently phasing out environmentally harmful subsidies; and the need to tackle the governance of addressing long-term and sustainability-based risks and opportunities.

The report will inform the European Commission’s Action Plan on Sustainable Finance, expected to be published in March 2018. [Publication: Financing a Sustainable European Economy] [European Commission Press Release]