Despite notable progress on financing sustainable growth challenges persist in implementing sustainable finance policy, according to the Principles for Responsible Investment’s (PRI) 2030 EU Policy Roadmap.
While welcomed by responsible investors, the report said the complexity and pace of legislative measures have posed significant hurdles. Moreover, the focus placed on enhancing corporate and investor disclosure has led to other pivotal aspects of sustainable finance being overlooked.
PRI’s report, therefore, outlines key recommendations for European policy makers to accelerate private investment in the economic transition, presenting policy actions and tools available to the next Commission to create a financial system that rewards responsible investment, operates within planetary boundaries and promotes equitable societies.
“The actions EU policy makers take up to 2030 will play a defining role in determining whether the EU’s sustainability goals can be achieved. These goals are not only fundamental for EU competitiveness, security, market stability and resilience but also for the viability of humanity living within planetary boundaries,” said Elise Attal, PRI’s head of EU policy.
“The speed and complexity of the EU sustainable finance regulatory developments over recent years are leading to some implementation challenges, particularly in relation to the consistency of the various rules and concepts that they introduce. These challenges must be addressed to ensure a coherent policy framework that accounts for sustainability risks, opportunities and impact by investors and companies. PRI has developed detailed coherence-focused policy solutions to achieve these goals.”
Key policy priorities
Through the 2030 roadmap, PRI is calling for cohesive and transformative policy actions, with the economic transition demanding “urgent and tailored measures” to enhance the existing sustainable finance framework and to align it with broader EU Green Deal policies.
The report sets out six key policy priorities to achieve this. These include:
1 – Finance the transition: To achieve the goals of the EU Green Deal, private sector investments must significantly increase to bridge the €620bn per year financing gap. According to the report, investors are increasingly calling for tools that allow them to invest in companies and activities that are aligning with sustainability goals, and the EU has introduced measures that support transition planning. But further work is needed to provide an enabling environment and to fully leverage public finance.
2 – Clarify sustainable investment disclosures: While SFDR has played an important role in structuring investors’ ESG strategies and allowing them to report with common metrics, it is not achieving its overarching objective of mobilising capital towards sustainable activities. The Roadmap, therefore, recommends a timely review of SFDR to address the effectiveness and usability of the regulation.
3 – Strengthen investor stewardship and duties: As noted by two thirds of EU-based signatory respondents to the PRI in a Changing World Signatory Consultation, the future of responsible investment must combine managing ESG risks and identifying and acting on sustainability outcomes. Clearer and more supportive legislation on stewardship and fiduciary duties is needed to achieve this and enable investors to facilitate the economic transition.
“PRI recommends a significant shift in stewardship legislation in the EU. This cannot be achieved via piecemeal revisions to the shareholder rights directive. Instead, a new piece of stewardship legislation is needed to set out expectations for investors’ stewardship practices by clarifying their rights and responsibilities,” noted Attal.
4 – Ensure effective corporate governance and reporting: Robust and appropriate corporate governance arrangements, combined with consistent, reliable and comparable corporate sustainability disclosure, should enable companies and investors to support sustainable policy objectives through improved sustainability practice.
5 – Promote global interoperability: As first movers, the Commission has a very important role in collaborating with policy makers worldwide to seek consensus and increase overall support for sustainable finance reform and sustainability outcomes.
6 – Implement climate, nature and social policies: PRI also argues that, while strong and effective sustainable finance policy is essential to address the financing gap for achieving the European Green Deal, it cannot drive the transition by itself. An equitable net zero transition requires credible and robust policies that address economic externalities. These policies should also provide incentives for investments in low-carbon, nature-positive solutions, and ensure that there are social safeguards and transition support for vulnerable households and affected communities.
Commenting on social policies, Attal added: “In the years up to 2050 we will witness the shift to a low carbon economy and significant demographic changes and technological advances. These trends represent a huge opportunity for the European economy. However, they also entail several risks: not considering the social effects of the transition would undermine any related policy intervention and erode trust in European institutions working towards this goal.”
