Is green the new black? Mak­ing fi­nance en­vi­ron­men­tally friendly

Malta Independent - - News - Lisa Az­zopardi is an Ex­ec­u­tive in EU Pol­icy and Leg­is­la­tion at MEUSAC Lisa Az­zopardi

T hought money and green­house gases had lit­tle in com­mon? Think again! The realm of sus­tain­able fi­nance es­tab­lishes new links be­tween de­lay­ing cli­mate change and the fi­nan­cial world via a var­ied tool kit which in­cludes car­bon pric­ing, sub­si­dies and green bonds. Once re­garded as ‘ex­otic’, sus­tain­able fi­nance is now at the fore­front of the EU’s fi­nan­cial pol­icy agenda.

On a global level, the adop­tion of the Sus­tain­able Devel­op­ment Goals (SDGs) and the sign­ing of the Paris Agree­ment on Cli­mate Change in 2015 rep­re­sented large-scale turn­ing points in these ef­forts. As the UK pre­pares to with­draw from the EU, the Bank of Eng­land is us­ing reg­u­la­tion to nudge banks and in­vestors to change their ways by fram­ing the threat posed by cli­mate change not as an eth­i­cal is­sue that would res­onate mostly with eco-war­riors, but rather as a tragedy on the hori­zon that could rock fi­nan­cial sta­bil­ity.

At a Euro­pean level, the Euro­pean In­vest­ment Bank (EIB) was a pi­o­neer in its field when, 10 years ago, it is­sued so-called ‘Green Bonds’ on the fi­nan­cial mar­kets, just to men­tion one of many ini­tia­tives. The trend con­tin­ues. The EU, as an ac­tive global ac­tor, is ad­dress­ing the rise in global tem­per­a­ture in var­i­ous ways, the most re­cent ini­tia­tive cou­pling cli­mate change with the com­ple­tion of the Cap­i­tal Mar­kets Union, a Juncker Com­mis­sion’s pet project.

The sus­tain­able fi­nance pack­age un­veiled by the Euro­pean Com­mis­sion in May 2018, is not the first, nor will it be the last ini­tia­tive to bat­tle cli­mate change. The ac­tion plan sets out a pack­age of ini­tia­tives, in­clud­ing cre­at­ing EU la­bels for “green” fi­nan­cial prod­ucts or strength­en­ing the role of as­set man­agers and in­sti­tu­tional in­vestors to take sus­tain­abil­ity cri­te­ria into ac­count, and also on cor­po­rate re­port­ing.

This pro­gres­sion to sus­tain­abil­ity in fi­nance is be­com­ing the norm in the Euro­pean sphere. The ques­tions which need to be asked are: ‘What is sus­tain­abil­ity?’ and ‘Where do we draw the line?’ The Com­mis­sion is propos­ing a clas­si­fi­ca­tion sys­tem within which to clas­sify the sorts of ac­tiv­i­ties that qual­ify as sus­tain­able in­vest­ments and against which to bench­mark ex­ist­ing stan­dards. To this end, an EU-wide tax­on­omy sys­tem is be­ing pro­posed to help in­vestors de­fine sus­tain­abil­ity and iden­tify ar­eas where sus­tain­able in­vest­ment can cre­ate the big­gest im­pact. Up un­til now, only the EIB uses in­di­ca­tors to as­sess how ‘green’ in­vest­ment projects are. The Com­mis­sion is propos­ing the ex­ten­sion of the use of ‘eco-la­bels’ to fi­nan­cial prod­ucts once the EU tax­on­omy has been de­vel­oped.

The sec­ond pro­posal tack­les a con­sid­er­able mat­ter within the fi­nan­cial scene, known as ‘green­wash­ing’, a term coined in the 1980s to de­scribe out­ra­geous cor­po­rate en­vi­ron­men­tal claims. Were this pro­posal to come into ef­fect, a new cat­e­gory of cri­te­ria com­pris­ing low-car­bon and pos­i­tive car­bon im­pact bench­marks would pro­vide in­vestors with bet­ter in­for­ma­tion on the car­bon foot­print of their in­vest­ments.

Once in force, these ini­tia­tives will be in­stru­men­tal to help de­liver on the Paris Cli­mate Agree­ment and the SDGs.

While this bat­tery of leg­is­la­tion might sound like mu­sic to en­vi­ron­men­tally-con­scious Euro­pean cit­i­zens, one has to be care­ful not to fall for green tape.

The ques­tion that arises is ‘What can we all do to­day to make a bet­ter to­mor­row?’ In­cen­tivis­ing green fi­nance re­quires an am­bi­tious mind-set change cou­pled with a steady po­lit­i­cal im­pe­tus to be ef­fec­tive. If we gen­uinely want to move to a low-car­bon so­ci­ety, where re­new­able en­ergy and smart tech­nolo­gies spur job cre­ation, we have to put our money where our mouth is and walk the talk be­fore it is too late.

MEUSAC and the Min­istry for Fi­nance re­cently or­gan­ised a con­sul­ta­tion ses­sion on the sus­tain­able fi­nance pack­age. Var­i­ous at­ten­dees from civil so­ci­ety and govern­ment ex­pressed their views and gave feed­back on what Malta’s po­si­tion should be as ne­go­ti­a­tions pro­ceed in full swing. If you have any com­ments or sug­ges­tions, you are kindly asked to con­tact MEUSAC on con­

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