On 6 July 2021, the European Commission (the Commission) published its Renewed Sustainable Finance Strategy (RSFS). The RSFS follows the Commission’s 2018 Sustainable Finance Action Plan, which aimed to channel more investment towards environmentally sustainable activities. Under the 2018 Sustainable Finance Action Plan, the Commission presented two main legislative proposals establishing the building blocks for its sustainable finance framework, the now adopted Sustainable Finance Taxonomy Regulation ((EU) 2020/852) (Taxonomy Regulation) and Sustainable Finance Disclosure Regulation ((EU) 2019/2088). The RSFS sets out a number of planned legislative and regulatory initiatives envisaged by the Commission which are aimed at improving the financing of sustainable economic activities. The majority of the proposed activities are spread out over three years. The RSFS also complements the EU’s climate and environmental policies that were set out in the European Green Deal, which aims to make the EU become climate-neutral by 2050. In the RSFS, the Commission proposes initiatives in four different areas: climate transition finance, inclusiveness, resilience and contribution of the financial system to sustainability goals and the international perspective.

In particular, the RSFS includes six proposed actions:

1. Extending the existing sustainable finance toolbox to facilitate access to transition finance

• The Commission considers proposing legislation supporting the financing of certain economic activities that would help reduce greenhouse gas emissions. The support would mainly be provided in the energy sector.
• In addition, the Commission will consider options to extend the Taxonomy Regulation by recognising economic activities performing at an intermediate level of environmental performance.
• The Delegated Act containing technical screening criteria for the four environmental objectives (water and marine resources; biodiversity; pollution prevention and circular economy) under the Taxonomy Regulation will be adopted by Q2 2022.
• Also related to the Taxonomy Regulation, the Commission will work on new technical screening criteria which will be adopted under the Taxonomy Regulation and will cover more economic activities including agriculture and certain energy activities.
• In addition to the published alongside the RSFS, the Commission is considering establishing a general framework for sustainability labels for financial instruments, including other bond labels such as transition or sustainability-linked bonds, an Environmental, Social and Governance (ESG) Benchmark Label, minimum sustainability criteria for financial products that promote environmental or social characteristics. The Commission also considers introducing targeted prospectus disclosures.

2. Improving the inclusiveness of and access to sustainable finance

• The Commission will ask the European Banking Authority (EBA) to write an opinion on the definition of and support for green loans and mortgages, explore options to facilitate their uptake by 2022, and increase access of citizens and small and medium-sized enterprises (SMEs) to sustainable finance advisory services.
• The Commission wants to address the data gap in the area of sustainable finance related data by integrating this data in the data spaces envisaged in the European Data Strategy. It would like to reflect, in cooperation with the Digital Finance Platform, on possible further action to enable and encourage innovative solutions using digital technologies to support SMEs and retail investors.
• In 2022, the Commission wants to work on the identification of insurance protection gaps through the European Insurance and Occupational Pensions Authority’s (EIOPA) natural disaster dashboard and initiate a Climate Resilience Dialogue with all relevant stakeholders.
• By the end of 2021, the Commission wants to publish a report on a possible social taxonomy.
• The Commission aims to strengthen tracking methodologies for climate and biodiversity spending, support Member States who want to redirect their national budget to green priorities and organise an inaugural annual Sustainable Investment Summit ahead of the COP 26 climate change conference, taking place in November 2021.

3. Enhancing the resilience of the economic and financial system to sustainability risks

• With regard to financial reporting standards, the Commission will cooperate with international accounting bodies and the European Securities and Markets Authority (ESMA) to consider how financial reporting standards can best capture relevant sustainability risks.
• In the autumn of 2021, the Commission will propose amendments to the Capital Requirements Regulation and Capital Requirements Directive IV to ensure the consistent integration of sustainability risks in risk management systems of banks, including climate change stress tests by banks. The amendments will be part of the overall proposal to implement the final Basel III prudential standards.
• Before the end of 2021, the Commission will propose amendments in the Solvency II Directive to consistently integrate sustainability risks in the risk management of insurers, including climate change scenario analysis.
• Later, in 2023, the Commission will take legislative or regulatory action to ensure that relevant ESG risks are systematically captured in credit ratings and rating outlooks in a transparent manner, taking into account further work conducted by ESMA.
• The Commission aims to strengthen long-term financial stability through closer cooperation on financial stability risk assessment, regular stress tests, an assessment of macro-prudential tools and a study dedicated to risks stemming from environmental degradation and biodiversity loss.

4. Increasing the contribution of the financial sector to sustainability

• The Commission will aim to increase the financial sector’s contribution to sustainability by improving financial institutions’ disclosures of sustainability targets and transition planning, by examining to what extent more guidance could ensure that voluntary pledges by the financial sector are credible and monitor progress on these pledges.
• It will ask EIOPA to assess, by 2022, the need to review the fiduciary duties of pension funds and investors to reflect sustainability impacts as part of the investment decision making processes, including stewardship and engagement activities.
• The Commission will undertake efforts to improve the reliability and comparability of ESG ratings and further assess certain aspects of ESG research, to decide on whether an intervention is necessary.

5. Ensuring the integrity of the EU financial system and monitor its orderly transition to sustainability

• The Commission will monitor greenwashing risks, and assess and review the current supervisory and enforcement toolkit available to Member State competent authorities, to ensure that supervisory powers, capabilities and obligations are fit for purpose, with the support of the European Supervisory Authorities (the EBA, ESMA, and EIOPA);
• In addition, by 2023, the Commission aims to develop a robust monitoring framework to measure capital flows and assist Member States in assessing the investment gap and measuring the progress made by their financial sectors.
• The Commission will also aim by 2022 to strengthen cooperation between all Member States and EU public authorities and agencies, including the European Central Bank (ECB), to develop a common approach to monitor an orderly transition and ensure the double materiality perspective is consistently integrated across the EU financial system. With double materiality, the Commission means the impact of a company’s activities on the environment and society, as well as the business and financial risks faced by a company due to its sustainability exposures.
• The Commission will establish a Sustainable Finance Research Forum which will foster the exchange of knowledge between researchers and the financial community.

6. Developing international sustainable finance initiatives and standards

• Continuing the work that it started with the International Platform on Sustainable Finance (IPSF), the Commission is seeking an ambitious consensus which includes mainstreaming the concept of double materiality, stressing the importance of disclosure frameworks, and agreeing on objectives and principles for taxonomies.
• In addition, the scope of the IPSF’s tasks will be expanded, and its governance strengthened.
• The Commission will support low- and middle-income countries in scaling up their access to sustainable finance by developing a comprehensive strategy and by promoting sustainability-related financial instruments.