The European Union and sustainable finance: An ambitious plan into action


To achieve its climate targets by 2030, the EU Commission has adopted an ambitious action plan to channel investments towards a green transition. The public sector and capital markets must invest together to achieve this target.

Back in 2015 the European Union signed the UN Sustainable Development Goals (SDGs) and the Paris Agreement on climate change: sustainability thus became a top priority in the EU economic and financial policy agenda.  This means supporting the transition towards circular, eco-friendly and inclusive economic growth based on lowcarbon, renewables and energy efficiency solutions. In order to ensure that its 2030 climate targets are achieved, the EU Commission has estimated an annual investment gap of €180 billion1. This is beyond the capacity of the public sector alone: capital markets are thus expected to play a crucial role. In the last three years, the EU institutions have been strongly committed to building a policy and regulatory framework enabling the financial system to channel investments towards a green transition.

After receiving advice from a High-level Expert Group, in March 2018 the EU Commission adopted an Action Plan outlining and scheduling ten proposals aimed at:

  • Re-orienting investments towards sustainable projects;
  • Upgrading the management of material ESG-related risks;
  • Improving transparency and encouraging a long-term approach in business and financial activities.

In May 2018 three regulation proposals were formulated with regard to2:

  • A “taxonomy” on environmentally sustainable economic activities as a standardised and unified classification system for sustainable and responsible investments (SRI);
  • Disclosure requirements for institutional investors on how environmental, social and governance (ESG) criteria are factored into investment policies and riskmanagement procedures;
  • New benchmark categories to test investors’ portfolios against low-carbon and positive carbon impact baskets.

It is worth noting that the EU Commission chose the regulation: since it is automatically enforceable as law in all member States simultaneously, it is the most binding act in the EU legal system. This is clear evidence of the importance and urgency the EU institutions acknowledge regarding the mainstreaming of sustainable approaches in financial markets. Furthermore, the EU Commission launched a public consultation on integrating ESG considerations into financial advice in order to amend MiFID II and the Insurance Distribution Directive (IDD). Soon after publishing the proposals, in June the EU Commission established a Technical Expert Group on Sustainable Finance (TEG) charged with producing recommendations on four topics:

  • Taxonomy;
  • Non-binding guidelines on climate-related disclosures for public interest companies;
  • Low-carbon and positive carbon impact benchmarks;
  • EU Green Bond Standard.

The TEG, which is supposed to complete its activities by June 2019, has produced three reports on taxonomy, disclosures and Green Bond Standard. The document on benchmarks is being finalised and the taxonomy is expected to be completed.


In December 2018, the TEG published the first results of its work on climate change mitigation activities3: the document lists macro-sectors which are carbon-intensive and/or can contribute to decrease emissions in other fields; for each sector, the TEG specifies single economic activities with technical criteria and evaluations on the absence of negative impacts on other EU environmental targets. The TEG is now expected to publish a “second round” of mitigation activities and a list of adaptation activities. Last March, the EU Parliament approved its position on the Commission’s proposal: after a long and complex debate, it agreed on qualifying as negative-impact activities all power generation activities that use fossil fuels or produce non-renewable  waste and all the sectors impeding a transition towards a lowcarbon system. The possibility of extending the taxonomy to social issues and human rights was not adopted; the debate is still ongoing among financial operators on the fitness for use of such a classification.

Climate-related disclosures

Issued in January and subject to public consultation, the report includes recommendations on updating the nonbinding guidelines of the Non-Financial Reporting Directive (NFRD). The work of the TEG was aimed at linking the 11 recommendations of the Task Force on Climate related Financial Disclosures (TCFD) of the Financial Stability Board with the elements the NFRD requires to be disclosed.

The report recognises three types of disclosures:

  • General (the company should disclose);
  • Supplementary (the company should consider disclosing);
  • Disclosures companies may consider disclosing.

The EU Commission is expected to publish its updated guidelines in June 2019.

EU Green Bond Standard (GBS)

By introducing a common and standardised framework, the GBS’ purpose is to address the barriers to market development and increase investments in green projects. Besides policy recommendations, TEG has also proposed a GBS draft model, which is coherent with the taxonomy and with common international certification schemes, as the Green Bond Principles. According to the scheme:

  • Revenues must be allocated to green projects;
  • Issuers should explain how the green bond is aligned to the GBS;
  • A yearly reporting on the allocations volumes and criteria must be provided by the issuer;
  • An External Reviewer must be designated.

Furthermore, the EU Commission sought ESMA and EIOPA’s advice on integrating ESG factors and risks into MiFID II, UCITS and Solvency II Directives. Another significant milestone in this phase of the reform process is the political agreement between the EU Parliament and the Council on transparency requirements regarding the integration of ESG risks and opportunities within institutional investors’ policies. There is still room for further discussions about whether to include ESG within the concept of fiduciary duty. Substantial progress has been made, but much work still needs to be done. May’s elections may bring about substantial changes in the EU institutions’ structure. What is essential is not to lose all that has been achieved: sustainability and climate considerations go beyond political positions.


Secretary General - Forum per la Finanza Sostenibile

Francesco is a member of the Eurosif board and has worked as a program manager for the UN and other international organisations. Since the 1990s, he has been a promoter of ethical finance and has managed microcredit and social and environmental finance organisations such as FEBEA (European Federation of Ethical and Alternative Banks). He graduated from the University of Padua.

(1) European Commission website. 2018.
(2) European Commission website. 2018. European Commission website. 2019.