EU Taxonomy: MEPs do not object to inclusion of gas and nuclear activities.

Posted on July 7, 2022 by Miguel Chamochin

EU missed opportunity to show global leadership on climate change with a robust and science-based taxonomy that underpins a credible pathway to net zero. This will undermine the EU’s climate neutrality target by 2050.

The taxonomy is a voluntary instrument to guide financial sector toward investment that allow us to reach our climate goals, which it is a de facto the key driven force. We are talking about what is the guide for the future on what is sustainable.!

Europe’s energy shortages have underscored the challenges of phasing out fossil fuels & nuclear power, and of relying on renewable supplies and power storage. Gas is seen as a way of helping to wean poorer EU countries like Poland off coal, which pollutes much more. France have touted nuclear as a low-carbon energy source crucial for the replacement of Russian fossil fuels. Excluding these energies sources from the taxonomy could be “particularly challenging” for Ukraine’s post-war reconstruction. Germany has expressed its rejection of the inclusion of nuclear energy and its dependency on gas. This decision could benefit Russia and perpetuate European reliance on its gas supplies.

It’s completely clear that both nuclear energy, and fossil gas have nothing to do with sustainability. This denotes the supremacy of lobby groups and countries’ energy policy over the scientific rationale.!!!

The European Central Bank takes further steps to incorporate climate change into its monetary policy operations.

Posted on July 5, 2022 by Miguel Chamochin

The ECB will account for climate change in its corporate bond purchases, collateral framework, disclosure requirements and risk management, in line with its climate action plan.

The Eurosystem aims to gradually decarbonise its corporate bond holdings, on a path aligned with the goals of the Paris Agreement. It will limit the share of assets issued by entities with a high carbon footprint that can be pledged as collateral by individual counterparties when borrowing from the Eurosystem. It will only accept marketable assets and credit claims from companies and debtors that comply with the Corporate Sustainability Reporting Directive (CSRD) as collateral in Eurosystem credit operations. The Eurosystem will further enhance its risk assessment tools and capabilities to better include climate-related risks.

These measures aim to reduce financial risk related to climate change on the Eurosystem’s balance sheet, encourage transparency, and support the green transition of the economy.

Looking ahead, the Governing Council is committed to regularly reviewing that they are fit for purpose and aligned with the objectives of the Paris Agreement and the EU’s climate neutrality objectives.

EU agrees on company disclosures to combat greenwashing.

Posted on June 22, 2022 by Miguel Chamochin

The European Union has reached a deal on corporate sustainability 𝗿𝗲𝗽𝗼𝗿𝘁𝗶𝗻𝗴 𝗿𝗲𝗾𝘂𝗶𝗿𝗲𝗺𝗲𝗻𝘁𝘀 𝗳𝗼𝗿 𝗹𝗮𝗿𝗴𝗲 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝗳𝗿𝗼𝗺 𝟮𝟬𝟮𝟰.

Listed or unlisted companies with over 250 staff and turnover of €40 million will have to disclose environmental, social and governance (ESG) risks and opportunities, and the impact of their activities on the environment and people.

Some smaller listed companies will be subject to a lighter set of reporting standards, which they can opt out of until 2028, the committee said. 𝗧𝗵𝗲 𝗮𝗴𝗿𝗲𝗲𝗺𝗲𝗻𝘁 𝗳𝗼𝗿𝗲𝘀𝗲𝗲𝘀 𝘁𝗵𝗮𝘁 𝘀𝘂𝘀𝘁𝗮𝗶𝗻𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗮𝗻𝗱 𝗳𝗶𝗻𝗮𝗻𝗰𝗶𝗮𝗹 𝗿𝗲𝗽𝗼𝗿𝘁𝘀 𝗺𝘂𝘀𝘁 𝗻𝗼𝘁 𝗯𝗲 𝗮𝘂𝗱𝗶𝘁𝗲𝗱 𝘀𝗲𝗽𝗮𝗿𝗮𝘁𝗲𝗹𝘆. The CSRD will replace the current Non-Financial Reporting Directive (NFRD).

EU banking package and sustainability

Posted on October 28, 2021 by Miguel Chamochin

On 27 October 2021, the European Commission adopted a review of EU banking rules (the Capital Requirements Regulation – CRR – and the Capital Requirements Directive – CRD IV). These new rules will ensure that EU banks become more resilient to potential future economic shocks.

The package implements Basel III, stablishes new sustainability rules, and provides stronger enforcement tools for supervisors overseeing EU Banks.

Concerning Sustainability, it intends to strength the resilience of the banking sector to ESG risks, aligned with the Commission’s Sustainable Finance Strategy. It improves the way banks measure and manage these risks, ensuring that markets can monitor what banks are doing. This proposal will require banks to systematically identify, disclose and manage ESG risks as part of their risk management. It includes regular climate stress testing by both supervisors and banks. Supervisors will need to assess ESG risks as part of regular supervisory reviews. All banks will also have to disclose the degree to which they are exposed to ESG risks. To avoid undue administrative burdens for smaller banks, disclosure rules will be proportionate.

The proposed measures will not only make the banking sector more resilient, but also ensure that banks take into account sustainability considerations.

European Sustainability Reporting Standards

Posted on October 4, 2021 by Miguel Chamochin

Cluster 2 of the EFRAG’s Project Task Force on European Sustainability Reporting Standards (PTF-ESRS) has published a Climate Standard Prototype working paper as well as an accompanying basis for conclusions. EFRAG said that these documents are a “robust basis for future PTF-ESRS discussions and a further step towards a draft standard.” The PTF-ESRS continues to work on draft standards covering sustainability issues requested in the CSRD proposal

Climate Change and prudential policy

Posted on August 9, 2021 by Miguel Chamochin

Central Banks’ objective of maintaining price stability, enables climate protection goals. For example, low inflation rates will allow households and ﬁrms to detect price signals from climate policy and adjust thus their behaviour. Putting the right price tag on greenhouse gas emissions is arguably the most powerful weapon in the ﬁght against climate change.

Central Banks should not slip into the role of a climate policy actor as they have different segregation of responsibilities. Unlike monetary policy, climate policy changes the distribution of resources and income distinctly and permanently. Democratic processes and direct political accountability are important when making such decisions. Central Banks should guarantee independence to safeguard price stability objective.

A clash of objectives could arise as well if, say, the Central Bank attempted to use its monetary policy asset purchase programmes to pursue environmental policy objectives, as these programmes need to be scaled back as soon as warranted to ensure price stability. Ultimately, monetary policy is not a structural policy instrument: it is cyclical in nature, balancing each other out over the long run through the interplay of monetary policy loosening and tightening.

However, Central Banks can step up their game to protect the climate without running the risk of overstretching their mandate of preserving price stability. As climate change affect firms and lenders, Central Banks need to ensure that climate-related ﬁnancial risks are appropriately taken into account as part of risk management.

So, from a monetary policy, perspective, Central Banks are within their rights to request better information. The Eurosystem should consider purchasing or accepting as collateral only those securities whose issuers meet certain climate-related reporting requirements. Hence, the importance of the ratings of agencies to adequately and transparently reﬂect climate-related ﬁnancial risks.

Other further measure may be to limit the maturities or the volume of securities from certain issuers in the monetary policy portfolio, if required to contain ﬁnancial risk.

Sustainable Finance Disclosure Regulation (SFRD) – Q&A published by the EU Commision

Posted on August 2, 2021 by Miguel Chamochin

The following points were addressed:

1. The 500-employee criterion includes employees of a parent undertaking and of subsidiary undertakings regardless of whether they are established inside or outside the EU.

2. The definition of ‘financial market participant’ outlined in the regulation includes both EU Alternative Investment Fund Managers (AIFMs) and non-EU AIFMs.

3. Registered AIFMs must also fulfil the requirements laid down in the SFDR.

4. In addition to ‘sustainable investments’, Article 9 products may also include investments for specific purposes such as hedging or liquidity, which must meet minimum environmental or social safeguards.

5. A financial product that promotes environmental, social or sustainability requirements or restrictions laid down in law, including international conventions or voluntary codes, in its investment policy is subject to Article 8. Additionally, financial products having an environmental objective but not meeting the DNSH principle should also qualify as Article 8 products.

Furthermore, the promotion of ESG characteristics does not refer solely to pre-contractual disclosures, but also to a broad range of documents including marketing communications, advertisements, use of product names or designations, and factsheets.

This Q&A was published in response to questions asked by the European ESAs (ESMA, EIOPIA and EBA). It provides clarity for financial market participants in response to a broad range of questions relating to the disclosure requirements specified in the Sustainable Finance Disclosure Regulation 2019/2088.

Spain’ Sovereign Green Bond Issuance in September

Posted on July 29, 2021 by Miguel Chamochin

The Spanish Sovereign Green Bond Framework is aligned with the four core components of the Green Bond Principles 2021 (GBP) and follows best market practices identified by Vigeo Eiris (VE). The Kingdom of Spain’s Sovereign Sustainability Rating from VE is 78/100, which indicates an ‘advanced’ sustainability performance, the highest level on VE’s four-point scale.

Spain will sell its inaugural green bond in September. The Spanish Treasury’s first such bond will have a 20-year maturity. Spanish government did not specify how much it plans to raise, though the government has identified 13.6 billion euros ($16.1 billion) of projects to finance or refinance projects tied to the country’s environmental objectives, including renewable energy, biodiversity protection, and climate change adaptation.

In addition, Spain will invest around 20 billion euros on other environmental programs through 2023 that will be financed by the European Union’s executive arm. The bloc is also expected to make its green bond debut later this year and ultimately become the world’s biggest seller, channelling those funds to member states as part of its pandemic recovery package.

The EU has also laid out a voluntary green bond framework and Spain plans to align its spending with the bloc’s classification of sustainable investments, or taxonomy. The first green bond is included in the country’s plan to issue 80 billion euros of net debt this year.

Spain’s Sovereign Green Bond Framework: https://bit.ly/3zNr22V

Vigeo Eiris’ Second Party Opinion: https://bit.ly/3rGEP8v

EU social taxonomy and taxonomy extension linked to environment reports

Posted on July 14, 2021 by Miguel Chamochin

The draft proposal for a social taxonomy will argue that in the face of a pandemic, unanswered social questions around a sustainable transition, continuing human rights abuses and continuously rising costs for housing, the time is right to identify economic activities that contribute to advancing social objectives. Just as the EU environmental taxonomy defines activities that substantially contribute to environmental objectives, a social taxonomy would do the same for social objectives.

Built on the foundation of international norms and principles like the sustainable development goals (SDG) and the UN guiding principles for businesses and human rights, a social taxonomy would help investors to contribute to finance solutions around ensuring decent work, enabling inclusive and sustainable communities and affordable healthcare and housing. A social taxonomy would be a tool to help investors identify opportunities to contribute to these objectives.

The Public Consultation Report on Taxonomy extension options linked to environmental objectives will be focussed on support for the environmental transition needed in the whole economy – it proposes further clarity on both: activities that are significantly harmful to environmental sustainability, and those that have no significant impact on it. The aim is to support transitions in areas currently of “significant harm”. They should transition to a level that at least does not cause significant harm, even if they do not actually reach substantial contribution (green). The report will set out options to build on the existing taxonomy and its use.

The Platform on Sustainable Finance will welcome stakeholder feedback on both drafts through two calls for feedback, which will run from 12 July to 27 August 2021. Platform’s advice on this will feed into Commission’s report on potential extension of taxonomy framework to be adopted by the end of 2021.

Commission puts forward New strategy for Sustainable Finance and proposes new European Green Bond Standard

Posted on July 7, 2021 by Miguel Chamochin

The Commission also adopted yesteday a Delegated Act on the information to be disclosed by financial and non-financial companies about how sustainable their activities are, based on Article 8 of the EU Taxonomy.

Thus, EU took another major step towards achieving the goals in the Green Deal by ensuring a comprehensive approach to funding the green transition.

EU proposed incorporating climate-related risks into banks’ capital requirements. The challenge for lenders is weaning themselves off their lending exposure to fossil fuels. Their initial disclosures have been limited and commercial lenders still have “patchy” data regarding their exposure to climate change.

The ECB will hold a stress test next year to see how their balance sheets may fare as the climate and economy shifts. EU states will be asked to assess by June 2023 how their financial markets contribute to reaching the bloc’s climate goals. ECB will then calibrate the right pace for the transition by setting intermediate targets for the financial sector. Insurance capital rules may also be similarly amended.

The Commission confirmed it will publish taxonomy rules later this year for agriculture, certain industries and possibly nuclear and gas power plants. EU needed to guard against the risks associated with the transition, thus considering an “intermediate taxonomy” that would allow transition bonds.

The strategy seeks to empower individuals and the bloc’s 23 million SME by defining green loans and mortgages by 2022. New accounting rules may also be needed to “recognise and report” ESG risks in financial statements.

The strategy sets out a positive vision of the reform needed in the financial system to support the European economy.

Miguel Chamochin´s Blog

Transformation: Digitalization & Sustainability. @AgendaCAF & Professor @IEuniversity. Passionate about this wonderfull planet. Dad, longlife learner, runner.

Tag Archives: sustainablefinance

The European Central Bank takes further steps to incorporate climate change into its monetary policy operations.

EU agrees on company disclosures to combat greenwashing.

Sustainable Finance Disclosure Regulation (SFRD) – Q&A published by the EU Commision

Spain’ Sovereign Green Bond Issuance in September