In December, we marked the third anniversary of the Paris Agreement and global leaders gathered in Katowice, Poland to discuss sustainable finance and how they were going to tackle Climate Change and keep to their promise of lowering global warming to below 2 degrees Celsius. To reach these goals, the European Investment Bank predicts an additional €270bn will be needed for the energy, transport, water and waste sector. How will the financial sector become part of the solution? Additionally, how can the public and private sector come together to solve this?

Minimum 40% cut in greenhouse gas emissions compared to 1990 levels.
At least a 32% share of renewables in final energy consumption.
At least 32.5% energy savings compared with the business-as-usual scenario.
The EU has committed to three climate and energy targets in 2030 in line with the Paris Agreement.

As part of the Technical Expert Group (TEG) for Sustainable Finance, I joined a panel of experts to discuss our role in helping the European Commission introducing new policy to achieve these targets. Martin Spolc, Head of Unit for Sustainable Finance at the European Commission moderated the session, and was joined by Nathan Fabian, Director of Policy and Research at PRI; Aila Aho, Head of Sustainable Financing at Nordea Bank AB; and Jose Luis Blasco, Member of IEAF/EFFAS.

Divide and conquer
There are four key areas the TEG is working on to support the Commission’s action plan on sustainable finance:

EU classification system – the so-called taxonomy – to determine whether an economic activity is environmentally sustainable.
EU Green Bond Standard (GBS).
Guidance to improve corporate disclosure of climate-related information.
Benchmarks for low-carbon investment strategies and enhanced disclosure for ESG benchmarks.

Source: European Commission
Taxonomy
A taxonomy is a classification system and we are hoping to use an agreed system to track economic activities, which aim to reach environmental targets. Nathan outlined how we are simply “not investing enough in a sustainable economy…if we want a productive company, we need a healthy environment, and we must have economic activities to support those outcomes.” This defined list of environmental resources and activities are affecting our communities & economies, which in turn affects the ability for investors to earn a financial return.

EU Green Bond Standard
The European green bond market was worth US$66Bn in 2018, but has huge potential for growth. Aila outlined the group’s aim to “introduce a standard to enhance transparency, consistency and comparability” to make sure participants can make more informed decisions and can support the market’s integrity. This work involves developing a system of tracking the use of proceeds and allocation of funds, pre and post reporting, and verification of reports in order to achieve this consistency. The ambition for the group? “This should be the gold standard in Europe that everyone would want to use, and serve as a beacon for international issuers” says Aila.

Corporate disclosure of climate-related information
Jose states we must have company disclosure to aid the conversation between the companies and society, the financial institutions, and the regulator. We need to look at “how the climate is impacting business and how the business is impacting climate change. If you don’t measure, you don’t manage.” Investors need sustainability information from companies to assess risks and move funds into the right economic activities to achieve a positive