Editorial & Advertiser Disclosure Global Banking And Finance Review is an independent publisher which offers News, information, Analysis, Opinion, Press Releases, Reviews, Research reports covering various economies, industries, products, services and companies. The content available on globalbankingandfinance.com is sourced by a mixture of different methods which is not limited to content produced and supplied by various staff writers, journalists, freelancers, individuals, organizations, companies, PR agencies Sponsored Posts etc. The information available on this website is purely for educational and informational purposes only. We cannot guarantee the accuracy or applicability of any of the information provided at globalbankingandfinance.com with respect to your individual or personal circumstances. Please seek professional advice from a qualified professional before making any financial decisions. Globalbankingandfinance.com also links to various third party websites and we cannot guarantee the accuracy or applicability of the information provided by third party websites. Links from various articles on our site to third party websites are a mixture of non-sponsored links and sponsored links. Only a very small fraction of the links which point to external websites are affiliate links. Some of the links which you may click on our website may link to various products and services from our partners who may compensate us if you buy a service or product or fill a form or install an app. This will not incur additional cost to you. A very few articles on our website are sponsored posts or paid advertorials. These are marked as sponsored posts at the bottom of each post. For avoidance of any doubts and to make it easier for you to differentiate sponsored or non-sponsored articles or links, you may consider all articles on our site or all links to external websites as sponsored . Please note that some of the services or products which we talk about carry a high level of risk and may not be suitable for everyone. These may be complex services or products and we request the readers to consider this purely from an educational standpoint. The information provided on this website is general in nature. Global Banking & Finance Review expressly disclaims any liability without any limitation which may arise directly or indirectly from the use of such information.

SUSTAINABLE FINANCE PLAN NEEDS TO BE PRACTICAL AND FLEXIBLE, SAYS INVEST EUROPE

  • Legislation on fiduciary duties should reflect breadth and variety of industry
  • Risk calibration may not be most effective route to sustainability
  • Taxonomy needs to be clear, flexible and based on existing standards

Private equity is well-placed to support the European Commission’s sustainable finance plan announced today, but any further measures need to take into account the diversity of the industry, says Invest Europe.

Today, the European Commission announced its Sustainable Finance plan, following January’s report from the High-Level Expert Group. Among other recommendations, the plan outlines that institutional investors and asset managers must explicitly integrate material environmental, social and governance (ESG) factors and long-term sustainability into their fiduciary duties.

“The EU’s goal of transitioning to a sustainable economy is important and private equity is well-positioned to support it,” says Michael Collins, CEO of Invest Europe, the association representing European private equity. “In order to create a truly sustainable finance landscape, the Commission’s plan needs to reflect the industry’s diversity and take a pragmatic approach.”

The plan’s following points are particularly important for private equity, according to Invest Europe:

Clarification of institutional investors’ and asset managers’ duties
“The target audience for the Commission’s new proposal is, rightly, broad but private equity investors and fund managers vary in size and have different investment models. For this reason, any legislation needs to leave sufficient flexibility on how to implement sustainable finance procedures in practice,” said Collins.

The asset class’s active stewardship and long-term investment horizons means many fund managers are already focused on ESG matters, both in their due diligence before choosing to invest and in their day-to-day management of the companies they back.

Invest Europe’s industry professional standards and reporting guidelines support the Commission’s aims. Outlining how investors and fund managers can consider sustainability as part of the investment-decision making process, the professional standards integrate ESG considerations throughout and encourage transparency on how this is done.

Potential revision of the prudential requirements for banks and insurance companies
Incorporating sustainability into banks and insurers’ prudential requirements is laudable, but could be difficult to achieve in practice.

“While it is important to consider ESG issues in all investment decisions, it remains unclear whether the risk calibration methodology in Solvency II or CRD is a suitable route to encourage this,” said Collins.

Taxonomy
The search for criteria against which to judge ESG factors could be a challenging exercise. Asset owner support will also be essential as they are the ultimate source of capital.

“Any taxonomy for sustainable assets needs to be based on existing widely accepted standards and definitions. It must be unambiguous, practical and adaptable as understanding of sustainability issues develops,” said Collins.

According to a recent survey commissioned by Invest Europe, 74% of global investors rate Europe as the world’s strongest region for commitment to sustainability and the environment. The same percentage said that sustainability is an important issue in their investment decision-making. Climate change is an area of focus this year for Invest Europe’s Responsible Investment Roundtable.