Published: 24th April 2018
Full article (paywall)
Article reproduced in full below:
Prior to the Paris Agreement political action on climate tended to focus on energy-intensive industries, and we have made significant (although inadequate) progress there. Now the focus is shifting to the money that funds these industries – including money that will eventually pay for our pensions. If we care about tackling climate change, we should be given the power to move our money in the direction of sustainability. This is the first ambition of the new European agenda for sustainable finance – although other areas of ecological crises and social and governance goals will follow.
The EU Commission began their work by appointing a High Level Expert Group (HLEG) who have recently produced an excellent report, exploring all the relevant issues and making some strong recommendations. The Commission itself then followed up with their own action plan on sustainable finance and a high-level conference with Emmanuel Macron as guest speaker who is positioning himself as a global leader on this agenda.
It has been a great honour for me to be chosen as the European Parliament’s rapporteur for our own report on sustainable finance, which will be voted in the Economics and Monetary Policy Committee this coming week. The idea is to shift the power of finance away from the destructive or ‘brown’ investments of the past and towards the rapid sustainability transition.
The commitment shown by the Commission in tackling the vital question of shifting finance away from carbon-intensive sectors is very welcome, although it was rather telling that they shifted the emphasis by calling their conference ‘Financing Sustainable Growth’ making some assumptions about the dynamic of a sustainable economy that many Green economists would challenge.
Due to action by various MEPs we have clarified that all the EU institutions are bound by the Paris Agreement. This gives us a useful platform from which to criticise some actions which are clearly not sustainable. A glaring example is the decision by the European Investment Bank to lend nearly €2.5bn to finance the Southern Gas Corridor which will lock Europe into gas dependency beyond the 2050 date when we have agreed to phase out fossil fuels.
Indeed, the vast majority of investment and lending is not compatible with internationally agreed climate objectives or environmental, social and corporate governance criteria. The EU Commission estimates that realising the Sustainable Development Goals will require annual investments in sustainable infrastructure worth €4.7-6.7tr.
So the Paris Agreement has provided a new impetus to decarbonise our economy, and the accepted urgency needed to respond to the threat from climate change has led to innovation in sustainable finance across the EU.
Examples include the French law of disclosure; German leadership in the field of public investment in the energy transition; the Bank of England’s timely action in encompassing the threat to financial stability from stranded assets; and Sweden’s ambitious agenda to integrate sustainability into its daily work. The report I am working on aims to take the best of this innovation from across the EU and determine minimum standards for all, guiding investment to ensure a just and rapid transition towards a sustainable economy and society.
While climate change is the most pressing ecological crisis we face, there are other serious threats to the future of humanity and other life on earth. Examples include the exhaustion of water supplies, the pollution of the water-table, deforestation, loss of habitats, soil degradation and the threat to food supplies. So far sustainable finance has encompassed only climate risks and this is the main focus of my European Parliament report. But this is only a first step and future work will need to include consideration of the wider ecological crises we face.
The current pace of the development of green finance and clean energy investments is too slow to meet the objectives of even the Paris Agreement, not to mention the other ecological crises and inadequate standards of social protection and governance. The ambition of the Commission on sustainable finance is to be applauded. Now the EU must show global leadership in this area and use the power of money to enable and accelerate the stabilisation of the climate and the protection of the global ecosystem for the sake of current and future generations.