Building a sustainable future means overhauling the financial system
Brussels, 21 September 2017 -Finance Watch, the public interest group working to make finance serve society, yesterday responded to the questionnaire on the interim report by the High Level Expert Group (HLEG) on Sustainable Finance.
"The HLEG’s interim report points to a future in which the financial sector could – if sufficiently reformed and guided – start to meet society’s needs on climate change and sustainability. We welcome their recommendations and hope that the structure and business models that currently dominate the financial sector will also come under the spotlight, so that the financial sector itself can be sustainable too."
Finance Watch Senior Research and Advocacy Officer, Mireille J.Martini, said:
"Building a sustainable future will mean overhauling the real economy as well as the financial system. We hope policymakers will take a transversal approach to this challenge, stimulating both the demand for sustainable finance as well as the supply of sustainable finance."
Our key messages to the High Level Expert Group include:
To be truly sustainable, the financial sector must foster a diversity of business models to cater for different types of sustainable projects (local banks, mutuals, credit unions, cooperatives, crowdfunding platforms, public banks, central banks, commercial banks…), that avoids an over-reliance on any one business model, and that does not tolerate moral hazard (taking the benefits while others bear the risks). This means revisiting regulation on leverage and bank structure in relation to too-big-to-fail banks, in addition to the reforms mentioned in the HLEG interim report.
We support the HLEG’s proposals to create classification system for sustainable assets and a system for sustainable asset labelling. The EU should not leave this work to the market but should take the lead in creating a set of precise and democratically agreed criteria for assessing financial assets on environmental, social and governance grounds.
We urge the Commission to promote policies that will encourage a pipeline of profitable low carbon investments. These measures should include a meaningful price on carbon emissions in the real economy; ambitious public investments to kick-start sustainable projects; and institutional oversight from the proposed new Sustainable Infrastructure Europe.
The HLEG identified some promising policy areas for further discussion, including updating prudential rules to reflect sustainability risks, and promoting networks of sustainable finance centres to promote best practice. We urge the HLEG to continue its ambitious and open-minded approach and look forward to reading more about these proposals in the final report.
Finance Watch participated in a public hearing hosted by the Commission on 18 July 2017.
The HLEG was established by the European Commission to advise it on developing a comprehensive EU strategy on sustainable finance and is due to issue its final report around the end of the year. Click here for the Commission’s webpage on the HLEG and consultation.