“There’s a lot of private interest in sustainable investing – it needs help to go in the direction we want it to go.”

dfv Euro Finance Group: You played a key role in the implementation of the European Green Deal a good 3 years ago. Are you pleased with the current development of the European Green Deal?

McGuinness: The European Green Deal set very ambitious goals, which will lead us to climate neutrality by 2050. Back in the European Parliament, when I was still an MEP, I helped negotiate the European Climate Law which wrote into law the goal of climate neutrality by 2050.

Now I am European Commissioner for Financial Services, I am helping to oversee a key part of implementing that goal: sustainable finance. We know that public money won’t be enough to reach climate neutrality, so we the work on sustainable finance is about helping the financial system and corporates play their role in the transition.

The Commission published the first sustainable finance action plan in 2018. In just five years, we’ve built a strong rulebook that supports the flow of private finance towards sustainable investments. We have put in place regulations, disclosure systems, green bond standards and benchmarks – along with the world’s first sustainable investment classification system, the EU Taxonomy.

The good news is that the EU sustainable finance framework is increasingly being used by the market. The first indications of corporate reporting from this year are encouraging, with companies across key sectors making good use of the Taxonomy as part of their sustainability efforts. The first reporting data, although not yet complete, also confirms that the EU Taxonomy is not just being used by companies that are already fully sustainable, but a standard that companies can usefully employ on the ground to advance their transition. 63% of the STOXX Europe 600 companies reported their Taxonomy-alignment figures already, and 30% of these companies reported non-zero alignment. What is even more encouraging is that companies reporting non-zero figures have on average 23% Taxonomy-aligned capital expenditure, 24% Taxonomy-aligned operational expenditure and 17% Taxonomy-aligned revenues.

On 13 June, we presented a new package that strengthens the foundations of our sustainable finance framework and ensures it works on the ground. As part of this package, we presented an overview of recent measures taken by the Commission to address key implementation issues reported by stakeholders. We want the rules to be easy to implement, clear, and consistent, and that administrative burdens are minimised as much as possible. Now the Commission will continue work on improving the usability of the Taxonomy and of the wider sustainable finance framework, with the support of the European Supervisory Authorities and the Platform on Sustainable Finance, and based on further stakeholder engagement.

To boost the power of the Sustainable Finance framework, we have clarified that it is not only about companies that are already green. It is also there to help companies at different starting points, that want to transition towards greener activities. In particular, we have provided guidance on how the different pieces of the framework, such as the EU taxonomy, EU Green Bond Standard and transition plans, can be used voluntarily by companies to attract capital for financing projects needed for their transition and in ways that ensure a trusting environment for investors and the credibility of transition investment opportunities.

dfv Euro Finance Group: Could a state-verified seal help build trust and thus encourage more private investors to invest in green assets? 

McGuinness: As part of our Sustainable Finance work, we have developed tools to allow investors to easily use definitions and disclosures, for example the European Green Bond Standard. The European Green Bond standard is designed to be a gold standard that sets the benchmark for future issuance of environmentally ambitious green bonds. The new standard would be aligned with market best practices on reporting and external review.

This means that investors buying a European Green Bond will benefit from the assurance that the proceeds of that bond are allocated to green projects that align with the detailed, well-known requirements of the EU Taxonomy. As more economic activities are added to the Taxonomy, the types of green projects that can be funded by a European green bond will continue to increase, which should also contribute to higher uptake of the standard.

dfv Euro Finance Group: What are the consequences of this shift in focus to private investors for the financial industry and for firms and companies?

McGuinness: The EU will need additional investments of about EUR 700 billion annually to meet the objectives of the European Green Deal – as well as RepowerEU (which is about diversifying energy supplies and becoming more energy efficient) and the Net Zero Industry Act (which intends to strengthen Europe’s manufacturing capacity). As the scale of investment required is well beyond the capacity of the public sector, the main objective of the sustainable finance framework is to channel private financial flows into relevant economic activities. There’s a lot of private interest in sustainable investing – it needs help to go in the direction we want it to go.

 To that end, the EU has put in place three pillars that help improve the availability and reliability of sustainability data so that investors can make informed decisions and design credible investment solutions.

First, the EU Taxonomy: this science-based classification system of sustainable activities ensures that investors share a common understanding of the environmental sustainability impacts of their investments while providing safeguards against greenwashing. The Taxonomy now includes activities that can contribute to tackling climate change and towards environmental goals like restoring biodiversity. Alongside the Taxonomy, we have a new proposal on the transparency and integrity of ESG rating activities, an important step towards fighting greenwashing and other types of misinformation.

Second, disclosures: through the Sustainable Finance Disclosure Regulation and the Corporate Sustainability Reporting Directive, the EU has put in place a comprehensive disclosure regime impacting the whole financial sector to increase transparency about environmental, social and governance (ESG) impacts, risks, and opportunities. This is based on double materiality. The upcoming European Sustainability Reporting Standards will help complete this framework by enabling companies to communicate sustainability information in a standardised and proportionate manner, and accordingly facilitate their access to sustainable finance.

Third, investment tools: such as the EU Green Bond Standards and the EU Climate Benchmarks which aim to support financial market participants in their efforts to align their investment strategies with the EU’s climate and environmental goals.

dfv Euro Finance Group: You have campaigned for a reform of the ELTIF. What sustainable benefits do you expect from it?

McGuinness: The size of the European Long Term Investment Fund (ELTIF) market grew to around EUR 11.3 billion at the end of 2022. Several billion euros flowed into this fund segment in 2022 alone. Earlier this year the EU institutions agreed on the reform of the ELTIF regulation – the amendments should give the market additional momentum for growth in 2024 and beyond.

ELTIFs can invest in a broad range of asset classes, projects and geographies. This makes ELTIFs a perfect fund vehicle to invest in energy and transport infrastructure (solar and wind farms and other renewable energy, electric grid, energy efficiency, bridges, roads, etc.), as well as green and sustainability projects (renewable installations, green buildings, waste management and recycling, sustainable agriculture and farming, reforestation, water conservation and treatment, green manufacturing, etc.).

The flexibility of ELTIFs to invest in a broad range of sustainable and green projects has attracted a lot of market interest. Based on industry data, a total of EUR 5.3 billion was placed in ELTIFs with an explicit ESG reference by the end of 2022. We can project this sustainable investing growth to continue in 2024 and beyond, and not be limited solely to green and ESG investing but to a broad range of projects that fuel the EU economy, energy transition, job creation and growth.

dfv Euro Finance Group: What specific decisions would you like to see in the (green) finance industry by the time the 2025 climate targets of the Paris Agreement expire? 

McGuinness: By 2025, in the green finance industry we’d like to see:

1. A good uptake of the EU sustainable finance framework, so capital flows go towards green and transitional activities. With the main elements of the sustainable finance framework in place, the financial sector has started to apply the tools and disclosure standards. Over the next few years, as the quality and availability of disclosures and data improve, financial institutions will be able to use the Taxonomy and other ESG information to make informed investment decisions, engage on sustainability objectives and provide financing for the transition to a climate neutral economy. The benefits from applying the framework will increase as more data becomes more easily available. In parallel, the Commission will continue to support the finance industry’s efforts by providing practical guidance on how existing rules apply. It will also continue to assess gaps and usability concerns, and look at how to address them.
2. Greater integrity, transparency, and accountability in the finance industry on transition strategies. The EU has taken measures to ensure financial institutions translate EU goals into their long-term financing strategies. Progress has been made through adopting the Corporate Sustainability Reporting Directive, which will require large, listed EU companies, including financial institutions, to disclose their transition targets, plans, and progress towards achieving them. The availability of forward-looking information from non-financial undertakings will help the financial sector finance undertakings and projects with robust, credible decarbonisation targets and/or environmental commitments.
3. Scaling up international investments to promote the green transition and pave the way towards a climate neutral and sustainable economy by 2050. The success of the transition relies on strong cooperation at international level. That’s why the Commission remains committed to working with other international partners and jurisdictions so our standards are internationally comparable and enable the EU to exploit the potential of international finance for the transition.

dfv Euro Finance Group: Thank you very much, Ms Commissioner McGuinness.