The EU Green Taxonomy: The Good, the Bad and the Future

August 2019


A lot has been written about the draft taxonomy since the European Commission’s Technical Expert Group (TEG) first published their report in June 2019, setting out their proposals on activities that should contribute to climate change mitigation and adaptation in relation to the development of an EU classification system for environmentally sustainable economic activities.

At Sustineri, we have undertaken an analysis of the range of commentaries that have emerged in relation to the Taxonomy Technical Report published by the TEG from a variety of stakeholders such as financial institutions and think-tanks. In this piece, we summarise what might be considered “good” about the proposals, where improvement may be needed, and what the future prospects may be. Anyone with an interest – investors, companies, international policymakers – in how this landmark policy initiative is developing should hopefully find this useful.

What is proposed?

The report on the EU Taxonomy provides a classification system to determine whether an economic activity is environmentally sustainable. Inclusion in the taxonomy is restricted to activities that contribute to at least one of the six environmental objectives – “Climate Change Mitigation, Climate Change Adaptation, Sustainable Use and Protection of Water and Marine Resources, Transition to a Circular Economy Waste Prevention and Recycling, Pollution Prevention and Control, and Protection of Healthy Ecosystems – and also on the basis that it does no significant harm to any of the other environmental objectives”.

In its current draft, the Taxonomy includes specifications for only two of the six environmental objectives. For Climate Change Mitigation, the report presents a list of eligible economic activities. Included are “activities that are already low carbon, activities that contribute to a transition to a net-zero emissions economy in 2050 but are not currently close to a net-zero carbon emissions level, and activities that enable low carbon performance or enable substantial emissions reductions”.

For Climate Change Adaptation, the draft recognises that adaptation is context – and location-specific. Hence, instead a list of activities, it provides a set of guiding principles and screening criteria to assess the potential contribution of an economic activity to adapt to climate change and increase climate resilience. An adaptation activity may be eligible if “all material physical climate risks identified for the economic activity are reduced to the extent possible and on a best effort basis; and/or it reduces material physical climate risk in other economic activities”.

The other four environmental objectives will be reviewed by the Platform on Sustainable Finance, which will permanently replace the TEG, starting from autumn 2019, and will also have the role of regularly updating the sustainability criteria.

The Taxonomy, according to the TEG, should be implemented in a five-step process:

  1. Identify the activities conducted by the investee that could be eligible.
  2. For each potentially eligible activity, verify whether the company or issuer meets the relevant screening criteria.
  3. Verify that the do no significant harm criteria are being met by the issuer.
  4. Ensure compliance of the investee with the social minimum safeguards specified in the Taxonomy.
  5. Calculate alignment of investments with the Taxonomy and prepare disclosures at the investment product level.

What are the benefits?

A substantial recognised benefit of the introduction of a taxonomy is that it would significantly reduce (perhaps even remove altogether) the risk of “green-washing”of financial products. At present, it is too convenient for financial institutions to launch a product on to the market which claims to support low-carbon investment when the reality is more dubious, e.g. the issuance of green bonds with question marks about the use of the proceeds.

Several of the commentaries on the TEG study have noted the importance of the green-washing issue, as they – including the UNEP FI– have identified the benefit that the taxonomy should bring in developing a common language around climate finance. The establishment of a common understanding and a definition about what should be classified as “green” is a primary objective of the taxonomy: this is presumably why TEG members have decided to go into such granular detail, to provide clarity and to avoid confusion.

Strengthened disclosure on climate risk by investors has been a European Commission target since they launched their sustainable finance initiative. Indeed, the draft InvestEU programme (which is essentially the investment plan for the EU financing institutions for the next decade) specifically requires sustainability-related financial products to disclose detailed information about how they will meet their sustainability objectives. Published commentaries are positive in their verdict that the advent of the taxonomy will enhance the quality of climate disclosure across the sector.

National policymakers and regulators, according to a couple of commentators, should also welcome the taxonomy because of what it will do to inform their own national policies and measures. These past two years have seen steady progress, certainly in Western Europe, by e.g. the British and Dutch central regulators (prime movers behind the Network for Greening the Financial System), to mainstream climate and sustainability for finance and investment. Once the EU taxonomy is in place, it should bolster, and perhaps embolden, the progressive national regulators and force climate on to the agenda of other regulators who still don’t believe they should pay attention to it.

Last on the benefits, we will note our view that the “do no significant harm” clause in respect of the broader environment has attracted less attention than the classification system of the taxonomy. However, its inclusion, with its emphasis on the need to safeguard key environmental areas, might be beneficial to the impact investing sector because of its straightforward read-across.

How might it be improved, now or in the future?

A number of the commentaries we analysed (including from the trade association EFAMA) were concerned that the taxonomy might simply impose – in the light of the complex and granular detail that it goes into – too much of a burden to make it usable for an investor. It wouldn’t be the first time that financial institutions have complained about “restrictive regulatory burdens”.  But it’s certainly an issue the Commission will need to address in drawing up the legislation.

Linked to this, one or two commentators also complained that the taxonomy will not be made mandatory, and its impact will therefore be undermined by its non-binding nature. We heard the same about the TCFD when it was first introduced: making it mandatory would undoubtedly have accelerated its progress in some Western European jurisdictions. EU policymakers may wish to learn relevant lessons from the TCFD experience. There is also a related concern that, if the taxonomy is not mandatory, it risks being applied only by “greener” investors

The lack of available data at asset and activity level might also, it’s felt, hold back the take-up of the taxonomy, in that investors might not have the information to be able to undertake all five of the steps required under the taxonomy process. The reverse corollary of this, of course, is that the taxonomy might be a driver to make much more data available at the granular level.

The other consistent criticism aimed at the taxonomy (which academics and think-tanks have been particularly vocal about) has been circulating in European circles since the HLEG was established: that investors need a “brown” (i.e. carbon/fossil fuel-based) taxonomyas well as green, if they are able to make the most effective investment decisions that balance both opportunity and risk. The argument goes that, without sufficient knowledge of the brown exposure of an investment, there is a risk that an investor doesn’t have the full and necessary picture.

What does this mean specifically for investors?

The intended users of the EU Taxonomy are “Member States or the EU when adopting measures on market actors in respect to financial products or corporate bonds that are marketed as environmentally sustainable; and Financial market participants offering financial products as environmentally sustainable investments”. Furthermore, the EU believes that the Taxonomy could be used as the basis for labels, standards and definitions.

Apart from its significance for policymakers (which we address below in our conclusions), the taxonomy is therefore of particular importance, in our view, to institutional investors, banks and insurance companies. How financial institutions respond, will to a large extent depend on whether they see “first mover” competitive advantage to get ahead on green and sustainable investments.

Institutions will, of course, note that the TEG proposals are only a draft, but they should be under no illusion about the direction of travel and would be wise to work on the assumption that a taxonomy will pass into EU legislation by the middle of 2020.

Some of the major investment organisations have refrained from substantive comment on the TEG report, perhaps because the taxonomy is, at this stage, still some way from draft legislation status. However, in the light of the pros and cons listed above, it might still be helpful to underline what we have seen to be the principal investor concerns aired to date:

  • the resources issue (highlighted above): some investors seem to be concerned that the detail required to apply the taxonomy to investments might be overly resource-intensive;
  • lack of transparency and quality of data (see above) also seems to be a particular issue;
  • one other factor considered is whether the taxonomy will promote more active investor engagement with companies which can enhance knowledge and insights into asset and activity-level data, thus, making investors better able to go through all five steps of the taxonomy convincingly.

Taking these concerns in the round does pose an overall question for investors: how much resource should they allocate to gain first mover advantage? Or would they be better advised to free-ride others and change gear in their approach as taxonomy-related practices and information becomes more widely used and available.

What next in Europe and internationally?

 Most immediately for the EU, the TEG has asked for feedback on its report by 13 September. It will then analyse the responses and advise the Commission on next steps, with a view to the latter legislating. The Commission has promised to undertake a public consultationon its legislative proposal for the taxonomy before it becomes law. The expectation – although the EU law-making process will be subject to the inevitable hiatus as a new Commission, under new President Ursula von der Leyen, takes its place in autumn – is that it will pass into law, along with other parts of the Commission’s sustainable finance action plan, by the middle of next year.

The bigger issues surrounding the future prospects of the taxonomy are, in our view, threefold:

  • whether the green wave of new MEPs, who as an early marker forced von der Leyen into more ambitious pledges on decarbonisation as a price for their support for her confirmation, will in tandem with the Commission in turn lobby for a more ambitious taxonomythat has a wider impact on member state legislation.


  • looking beyond Europe, the Commission has been quite explicit about their hope that the taxonomy can set the bar around the world for others to follow suit. The EU has an active environment and green economy programme with China. In the light of the official policy guidance the Chinese Government has already issued on green investment guidelines, their activities on green bonds and disclosure, and also given the burgeoning clean energy sector there, the Chinese would seem to be following next in line after Europe. It’s also worth noting the interest that the EU has stimulated elsewhere: notably in Canada, where an expert panel on sustainable finance (along the lines of the Commission’s HLEG in 2017/18) issued a report in June with some practical recommendations to help push “sustainable finance into the mainstream”; and in Japan where a number of “green” bond issuances have taken place, where a high-level green finance network has been established, and the Economics Ministry is showing interest in what Europe is doing.


  • last, within the global context, the next 16 months (in the run-up to and including COP 26) will be pivotal to unlocking a step change in international climate action. Campaigners will be hoping that the dynamic between Europe’s green taxonomy and the political backdrop can generate an exponential growth in green finance markets and frameworks globally– or at least one that can create the right environment for the next decade. Article 2.1.c of the Paris Agreement – “making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development” – will be pivotal to tackling the climate emergency.


For further information, please contact Shuen and Richard at Sustineri. /

Insights & Reflections from London Climate Action Week 2019

July 2019

London Climate Action Week (LCAW) from 1-8 July 2019 gave the platform for a plethora of events staged by a spectrum of different actors and stakeholders. This provided an opportunity to reflect on the UK and the global landscape: on where we are right now in terms of tackling the climate emergency; and, just as importantly, what more needs to be done.

The existence of the first ever LCAW was in itself a statement. It probably represented, at least in part, a view that it is essential to speed up the British and international response to climate change, against the backdrop of the growing anxiety about what the science and multiple extreme weather events around the world are telling us. Society – epitomized by the school strikes and Extinction Rebellion’s radicalism – is responding in ever-increasing waves. The extraordinary explosion in the growth of renewable energy over the last decade has provided hope for a cleaner, low-carbon future. The adoption of a “climate emergency” and the 2050 net-zero goal by the UK Parliament is also a substantial policy response in this country. This accelerates the UK’s current target of cutting emissions by 80% in 2050 compared to 1990 levels, a goal enshrined in the 2008 Climate Change Act. The UK’s new target is “net-zero” by 2050. But a feeling at the start of LCAW that policymakers, investors and companies are still not acting with the due urgency and ambition has not gone away, despite the collective commitment, energy and creativity that LCAW inspired.

Taking stock, it seems to us that the waves of societal actions are now making fundamental demands of governments and the private sector (or, in shorthand, the “market”).One of the landmark events for the UK Government during LCAW was the launch of the Green Finance Strategy. This strategy has been more than 12 months in the making, following the report from the Green Finance Taskforce in April 2018. Looking at the strategy’s contents, there are some welcome measures, viz the establishment of the Green Finance Institute and mobilising green finance for home energy efficiency. But the threat to regulate on the recommendations of the Taskforce on Climate-related Financial Disclosure (TCFD) by 2022 feels too much like a compromise between those who want action now and those who still feel uneasy about regulating in this area. More generally, while the introduction does convey the necessary sense of urgency, the overall package of measures feels underwhelming and a bit “last year”.

This leads on to a wider point we picked up at various LCAW gatherings: the need for government across the board to be consistent in its policymaking if it really is serious about acting on the climate emergency. This requires those responsible in differing government departments – especially climate and finance – and regulatory positions to be co-ordinated and not create gaps or vacuums which leave business and investment uncertain about the direction of travel. Whitehall seems, for example, relatively joined-up on green finance: can the same be said about its approach towards carbon pricing?

However, the market must not be given a free pass either. A key reflection from LCAW is that UK government has already put in place frameworks that should encourage investors to step up and seize the opportunities that the transition is offering. There is more than enough evidence available right now on the economic tipping points for renewables (positively) and for coal (negatively), but many investors are still proceeding overly cautiously.

All that said, we should note that it was a successful week for the divestment movement: witness announcements from organisations such as the Royal Society of Arts, the Royal College of Emergency Medicine and the National Trust that they will divest from all fossil fuels in their portfolios. In other notable news during LCAW which may be a sign of things to come, the London Stock Exchange announced – in a move designed to distinguish between carbon-intensive companies and greener producers – that they are reclassifying oil and gas companies into a non-renewable energy category

In conclusion, we believe there are some over-riding lessons that need to be applied:

  • for policymakers and regulators: they should not allow finance and investment to cite policy gaps or mixed messages as an excuse not to act now on climate and sustainability;
  • for the market: they cannot leave it all to governments. There is competitive advantage to getting out ahead on this agenda. Yes, the politics are difficult (Trump, Saudi Arabia, Brazil, Brexit, etc.). But the science is uncontestable, and leaving behind the niche domain of environmental periodicals for the BBC news headline and FT financial analysis. Furthermore, the evidence that low-carbon will be the growth story of the 21stcentury is accumulating; and
  • finally, investors who are not yet comprehensively addressing climate-related risks and opportunities in their portfolios, and are inadequately preparing for the transition, are going to be in for a surprise when they wake up one day and find that the world has become a very different place – it’s called the Future.




The Role of Pension Funds in Addressing the Low-Carbon Transition: Key Takeaways from Chatham House Meeting, 1 July 2019

On 1 July 2019, as part of the UK’s inaugural London Climate Action Week 2019, Sustineri, Pensions for Purpose and The Prince’s Accounting for Sustainability Project (A4S) co-hosted a roundtable at Chatham House. The purpose of the gathering was to highlight major challenges and discuss pragmatic solutions in the UK pension fund industry in order to help drive systemic change in addressing climate-related risks and opportunities in pension portfolios. We convened senior representatives from Local Government Pension Schemes (LGPS), occupational pension schemes and the policy/regulatory community – including a keynote speech from Parliamentary Under-Secretary of State for Pensions and Financial Inclusion, Guy Opperman, and scientific insights from Professor Jim Skea, Chair of Sustainable Energy at Imperial College and Co-Chair of the IPCC Working Group III.


In a rich and varied discussion, policymakers heard from pension funds about what would help them to deliver on the climate goals. Pension funds also heard from government about what they can do to enable us to reach our common goals.

The key takeaways from the discussions were:

  1. Climate change poses a systemic and material risk to portfolios

The science is clear and irrefutable. It is vital for trustees of pension funds to address climate risk as part of their fiduciary responsibility. Climate change should not be treated as something separate, but should be assessed with equal importance to other economic risks. Recent regulatory changes have underlined the expectation that climate risk is treated as a financial risk, but this is not universally acknowledged among pension funds.

  1. Pension funds are responding, but more urgency and awareness is needed

A growing number of pension funds are addressing climate risks for example through low-carbon funds, investment exclusion polices and TCFD-aligned disclosure and reporting. However, participants noted that many trustees are not ‘climate competent’ or aware, putting their portfolios at risk.

  1. Investing to achieve net zero emissions by 2050 while building in resilience to address physical risks

Reducing the carbon exposure of funds, and testing whether portfolios are consistent with limiting the increase in global average temperatures to 1.5 degrees, is important. At the same time, pension funds need to invest in resilience to protect their investments from the physical risks of climate change as far as possible. These two goals can be mutually reinforcing.

  1. UK’s 2050 net-zero target

Participants welcomed the UK Government’s 2050 net-zero target. But investors need a joined up response across government, with policies adopted in the near term to help deliver that target, such as a coherent renewables policy and stronger carbon pricing.

  1. The need for policymakers and regulators to be more joined up

LGPS and occupational pension schemes are currently governed by different government departments and regulatory regimes, and would benefit from a more consistent policy approach. In addition, there was a view that there needs to be coordinated action across each relevant regulator covering business and the wider financial community, for example around reporting requirements along the investment chain.

  1. Opportunities of the transition

Pension funds should focus on the opportunities arising from the transition to a low carbon economy, as well as the risks. This includes a recognition that private markets are becoming more important for investors (taking into account the challenges that private markets pose, such as a lack of transparency).

  1. Looking beyond carbon and energy

The low-carbon transition is not just about the carbon and energy sectors. There will be impacts on other sectors such as the heavy industry and automotive sectors, land use and agriculture (note the IPCC will be publishing a special report on land use and food security in the autumn). More guidance is needed to help pension funds understand and respond to risks and opportunities in these sectors.

  1. The collective strength of pension funds

Pension funds have real power to influence other actors in the investment chain on the low carbon agenda, including asset managers and investment consultants. This influence is significantly enhanced when collective action is taken and pension funds share insights with one another. Market signals from investors matter, including on engagement such as shareholder voting at AGMs.  In addition, pension funds should demand more granular reporting and transparency on climate-related risk factors from their investment/asset manager at fund-specific level.

  1. Challenges when investing in pooled funds

Specific challenges exist for pensions investing primarily in pooled funds, with trustees finding that they are unable to influence the engagement and voting policies of funds in which they might be invested.

  1. Importance of civil society action

Civil society is mobilising on climate change, as evidenced by the school strikes and the rise of Extinction Rebellion. Beneficiaries (although many need to get further engaged) are also attaching greater importance to where pension funds are investing their money. Investors and companies who lag behind are increasingly vulnerable to being called out for inaction.

Please refer to the Minister’s speech here.

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Sustineri at London Climate Action Week 2019

July 2019

As part of the London Climate Action Week, on 1 July, Sustineri, Pensions for Purpose and The Prince’s Accounting for Sustainability Project (A4S  co-hosted a roundtable discussion at Chatham House on The Role of UK  Pension Funds in the Low-Carbon Transition. Representatives from local government and occupational pension schemes, and the policymaking and regulatory community, took the opportunity to discuss how they can individually and collectively respond to the climate emergency, addressing the challenges, risks and opportunities that it presents.
Key guest speakers were Guy Opperman, Under-Secretary of State for Pensions and Financial Inclusion at the Department for Work and Pensions (DWP), and Professor Jim Skea CBE FEI FRSA HonFSE, Chair of Sustainable Energy, Imperial college and Co-Chair IPCC Working Group III.
The Minister’s remarks – which addressed head-on the actions that pension funds and trustees can take, the power that they possess to drive change, and the “massive role” they have in terms of the transition – can be accessed here.
The co-hosts of the event also captured and distilled the key takeaways of a rich and varied discussion. Under the Chatham House rule, there are no remarks individually attributed. The tenor of the interventions around the table was that climate and the transition are being taken seriously, but that much more needs to be done – especially against the backdrop of the growing urgency of the challenge – and that, for their part, pension funds would welcome a more coherent approach across Whitehall on this agenda that also connects with the wider ecosystem.
As a backdrop for our discussion, Sustineri and A4S published a joint article in the FT’s Pensions Expert on the vital role of pension funds in addressing the transition – here.


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Merseyside Pension Fund: Future-proofing its Responsible Investment Strategy

January 2019

Sustineri is pleased to announce that we have successfully completed an initiative with Merseyside Pension Fund (MPF), a large Local Government Pension Scheme in the UK.

This exercise involved working with a variety of internal and external stakeholders, with the objective of reviewing the schemes’s Responsible Investing strategy to future-proof their broader investment strategy. We hope that the emphasis throughout the whole process on strengthening investment beliefs through engagement and inclusivity can act as a model for when other pension funds (public and private sector) come to revise their responsible investment strategies, an agenda which is becoming increasingly important and material for asset owners.

Details of our report and recommendations can be found on the Merseyside Pension Fund website – here.

Now is the time for the EU to show international climate leadership

The Leadership Vacuum

COP 24 has just begun in Poland and will finish on 14 December. There is a vacuum of leadership internationally on climate change right now. The US is occupying the place of Camus’s “The Outsider”.

Moreover, it’s still not clear, for all their domestic action on the environment and their burgeoning renewables sector, whether China is really prepared to don the mantle of a global leader. Ever since China became a super economic power, this question of global stewardship has circled uneasily above them. There are in fairness good reasons to argue that China is steadily moving towards being a global leader on climate and clean energy: witness for example their recent publication on Green Investment Guidelinesis seen as a game changer for ESG adoption by Chinese asset managers, and there is the sense they will want to go further on this agenda.

But it’s not clear if China’s leadership can at this stage summon up the political will to step up without reservation. So that leaves Europe as the only feasible contender right now properly to fill the vacuum.But can the EU seize its chance?

The Glass Half-Empty

From a glass half-empty perspective, the auspices are not good. First, Germany is no longer showing the leadership that it did when Merkel was once called the climate Chancellor. Dieselgate, and the German Government’s half-baked response to it, was something of a watershed for German environmentalists. Since then, the administration has continued to prevaricate over whether it can set a date to phase out coal; and the finger has been pointed at the Germans for not supporting sufficiently strong CO2 limits on cars and vans.

Poland also continues to lead the awkward squad from eastern Europe. They may be about to host (bizarrely) their third COP in a decade, but this is a country that still depends overwhelmingly on coal power for its electricity and has been crying foul about the startling rise of the EU carbon price over the last 18 months. The faultlines – along a broad western/eastern European split that has been in place for a long time – of European climate change policy have not faded away.

To compound Europe’s difficulties on climate, on present plans the UK is leaving the EU on 29 March next year. Whatever the increasingly fraught politics and the rights and wrongs of the 2016 referendum, a lot of European policymakers (in Brussels, Berlin, Paris, The Hague, the Scandinavian capitals) say quite openly how much UK expertise and commitment on climate change policy will be missed. At a time when European climate leaders need to come to the party, the Brits are heading for the exit door and won’t be able to exert the same influence from the outside.

The Glass Half-Full

On the other hand, to look at it through the glass half-full, there are some promising signs. Perhaps the most significant is the push coming from the European Commission on a longer-term goal. Last week, as promised, the Commission’s Climate Commissioner Canete published  the Commission’s long-term strategy for a climate neutral economy by 2050. Under the shadow of the recent IPCC 1.5oC Special Report, the Commission emphasizes its concern about the impacts of climate change, such as flooding and drought, on Europe (physical impacts are often overlooked in the European context, compared with the focus on developing countries). The communication does not propose any new policies or targets for 2030; rather, it considers – through a number of scenarios and building blocks – the longer-term direction of travel and how Europe can contribute to meeting the Paris Climate Agreement targets in line with the Sustainable Development Goals (SDGs), recognizing that the existing 2030 targets are insufficient to achieving Paris outcomes.

There is nothing new in the analysis and policy detail of this communication, but it is in our view significant for two reasons:

  • It contains the strongest linkage to date that the Commission has made between climate change and the finance and investment agenda, making a point of highlighting the Commission’s Action Plan on Sustainable Finance. (NB: we analyse European progress on sustainable finance further on in this article);
  • its concluding remarks about the EU’s global leadership, where it talks about “leading by example”, “enhancing its energy and climate diplomacy”, and “stepping up its efforts, leading worldwide”. These are statements which are now on the public record.

Having published the strategy to delineate a roadmap for 2050, the challenge for the Commission next is to secure the support of EU member states. The latter are in the process of submitting their draft national climate and energy plans (NCEPs) which will be central to achieving the 2030 goals. The strategy itself will then be considered during 2019, with the view to it being the foundation of an “ambitious” (the Commission’s word) new nationally-determined contribution (NDC) plan in 2020 under the Paris timetable, while also expanding international co-operation in this period.

It is worth recording the doubts about the Commission’s ability to deliver over the next 12 months since, following the EU parliamentary elections in May, the Juncker Commission will step down next summer. Juncker and Canete in particular have therefore been very aware of their climate legacy, and the newly-published strategy is therefore a good opening shot. But they will now have to sell this – above all to member states.

There remain, as we have detailed above, doubts over the political will of some EU member states; however, there are positive developments too. France, despite Macron’s evident domestic difficulties (which we should acknowledge are in part linked to his energy and climate policies), have grasped the baton of prime EU climate power that Germany and the UK are passing on.  Paris 2015 clearly sealed the deal, but the French have continued to press on: they have been at the forefront of linking the European climate and finance agendas; and their corporates and financial institutions are providing the essential private sector support that public policymaking needs.

Other bright lights include Spain, where the new Socialist government has instigated a step-change in its approach towards climate change. Sensibly combining energy and environment under one roof, It has formed a Ministry for Ecological Transition, headed by well-known environmental activist, Teresa Ribeira. Consequently, driven by Ribeira, the Spanish are promoting more ambitious emissions reduction targets, a new climate law, support for solar, and action on coal. As a testament of their new-found pro-activity, Spain have joined a number of northern and western European countries in signing the Carbon Neutrality Coalition, a group or progressive countries  that came together at the UN in New York this autumn. In terms of whether Europe can step up to the plate globally, this grouping could play an important role – and Germany is a member, so maybe there is hope for their domestic ambition yet!

The anti-coal agenda is also becoming more prominent in the European policy debate. The UK Government’s political weakness has not, to its credit, stopped it from driving (in conjunction with Canada) the Powering Past Coal Alliance, a movement of nation states, regions and companies dedicated to phasing out coal power. Although comprising mostly the usual suspects (and of course neither Poland nor Germany), this body is having an impact internationally and its arguments – the impacts of coal on CO2 emissions and air quality; the need therefore for the OECD and the EU28 to phase out coal power by 2030 – are inevitably affecting policy discussion inside the EU. So much so that, even in Poland, the future of coal is being questioned and the new power station Ostroleka C (at present under construction) is now being talked of as Poland’s last ever coal plant. More generally, as the Carbon Tracker Initiative is emphasising in its research, coal generation in Europe seems to be becoming commercially unviable.

There is also the startling rise in the EU carbon price over the last 18 months. Is the EU Emissions Trading System finally going to have a meaningful impact on emissions reduction over an enduring period?

Sustainable Finance Gathers Momentum

By common consent, the EU’s approach in the earlier part of the decade towards sustainable finance lacked intent and urgency by comparison with their front-foot approach towards decarbonisation. But that has changed over the last two years, since Dombrovskis became Financial Services Commissioner.  The step-change came in the establishment of the High-Level Expert Group on Sustainable Finance (the HLEG); the political commitment was left in no doubt when Dombrovskis’s Financial Services Directorate-General followed up the HLEG report this year with an Action Plan which the EU institutions are now in the process of delivering.

There is an important legislative measure in train in the form of a directive concerning disclosure on sustainability risks, notably climate, and investor responsibilities in relation to fiduciary duty. But the most important measure under consideration is the creation of a green taxonomy for Europe. This will be highly relevant to creating an environment which scales up investment in the low-carbon economy. Moreover, despite the departure from office of the current Commission in 2019, the institutions seem right behind pushing through the Action Plan to fruition by the end of 2019. In addition, policymakers are talking about taking the green taxonomy global (perhaps linking with China’s ambitious Green Investment Guidelines?), recognizing that the low-carbon international investment climate needs common standards and a universally accepted language if the challenge of scaling-up is to be met.

This move by European financial policymakers is being reflected by EU central banks and regulators. The Greening the Financial System, bringing together several central banks (mostly from Europe), was launched at the 2017 One Planet Summit, with the aim of strengthening the global financial system’s response to meeting the Paris Agreement goals, to manage risks and mobilise private capital. At last week’s Climate Finance Day – another example of France and specifically Paris leading the way on sustainable finance – some of the European central banks reaffirmed their commitment to this agenda, and how they can help deliver a coherent public/private response that makes the low-carbon transition a reality.

To complete this more joined-up picture, national financial regulators are pushing climate risk higher up their list of priorities. The UK’s Financial Conduct Authority recently launched its first ever consultation on climate change, to complement actions that have been taken in France, the Netherlands and Nordic countries. In addition, there is a sense that some of these progressive regulators are contemplating – depending on how the private sector deals with the climate risk disclosure agenda that has been set by the Taskforce for Climate-Related Disclosures (TCFD) – further strengthening (perhaps even making disclosure mandatory) their national corporate reporting framework on climate change and associated issues.

In Conclusion

 All this combines to present a picture which, even though it would still be premature to say that there is complete unanimity at EU member state level, is one of growing commitment to the low-carbon economy and – crucially – actively using policy frameworks to accelerate the transition. Perhaps the tipping point has been a realization that, to quote Lord Nick Stern, low-carbon is the “growth story of the 21stcentury”.

The question for the most immediate future is if this momentum can convert into political commitment at COP 24 in Katowice over the next two weeks. This latest gathering is being described, correctly, as the most important COP since Paris 2015. This is primarily because of the aspiration (which will probably be unfulfilled) to agree the Paris rulebook at Katowice, especially in terms of how to measure progress against NDCs. However, beyond the technical discussions, the goal of cementing the political conditions for greater climate ambition into the next decade is in reality the prize. At a time, when these international negotiations are looking somewhat wobbly, it is time for Europe to cast aside its divisions and size the opportunity that global leadership can provide.


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Navigating Climate Scenario Analysis: A Guide for Institutional Investors

Sustineri is pleased to announce the launch of a new report on scenario analysis for institutional investors by the Institutional Investors Group on Climate Change (IIGCC). Sustineri has been heavily involved in curating this guide, which has been the culmination of many months of roundtable discussions and collaboration with an institutional investor working group on scenario analysis. This will be the most comprehensive investor guide on scenario analysis to date, and serves as a practical toolkit for asset owners and asset managers to apply scenario analysis in understanding climate risks and opportunities in investment portfolios.

To read the full report, see here.

For further information, please contact Shuen or Richard from Sustineri – /

ClientEarth and Sustineri publish report on ‘Market Standards on Climate-related Risk for Asset Owners’

The low-carbon transition and the disconnect between companies and their pension funds