Pietikäinen: Financial sector needed on-board to tackle climate change and to invest in circular economy
Reaching the Paris climate goals and transitioning to a low-carbon economy will necessitate a total of over 11 trillion euros of investments in new technology and energy-efficient infrastructure globally by 2030. In Europe, the financial need is 180 billion annually.
According to Sirpa Pietikäinen, a Finnish Member of the European Parliament, private investments need to be directed in an appropriate manner in order to reach these goals. “No time should be wasted in ensuring that our legislation reflects these objectives in order to provide the necessary legal certainty for long-term investments that are being made today”.
The European Commission High-Level Expert Group on sustainable finance presented a set of recommendations for integrating sustainability indicators into the financial services sector this week. This is the most recent step towards changing incentives in the sector. The first legislative initiatives are expected to be presented by the European Commission in May and will aim at strengthening the fiduciary duty of institutional investors and asset managers, while developing an EU-wide taxonomy for green investment products.
Pietikäinen is the lead negotiator on behalf of the EPP group on an own-initiative report within the European Parliament that will be finalised in the spring. She expects the forthcoming European Commission strategy, which is to be presented in March, to outline how environmental impact indicators will be integrated in company reporting, credit ratings, and in long-term financial regulation as a whole.
“A structural challenge for the financial services sector continues to be a narrow and short-term concept of value creation, which results from incentives created by current legislation. For this reason, sustainability factors, comprised of environmental, social and governance factors, need to be integrated in all financial legislation and prudential supervision in the EU”, she asserts.
Pietikäinen underlines that profit and loss expectations change greatly from short term to long term scenarios as global warming proceeds. “Benchmarks, credit ratings, stress tests and stock exchange rules play a significant role in directing assets of investors in financial markets.”
In order to move towards a sustainable economy, investors need uniform reporting to base their investment decisions on, argues Pietikäinen. “Similar for financial reporting, in the future companies would provide data in their annual accounting on their performance using indicators such as use of resources, climate-preparedness and treatment of employees, for instance.”
Such indicators are already being developed by the OECD, the UN, the European Environmental Agency, and various actors in the financial services sector. Pietikäinen notes that success in solving sustainable finance will define how well we will be able to respond to climate change in future.
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