EUROPE: Main Requirements for the New Strategy of the EU Commission

Wednesday July 22 2020

The Bundesverband Deutscher Investmentgesellschaften (BVI) has published its main requirements for the new strategy of the EU Commission. With its consultation on “Renewed Sustainable Finance Strategy”, the EU Commission wants to review the effects of EU measures and adapt them to the EU’s more stringent climate targets.

• BVI strongly supports the basic idea of the EU Action Plan of 2018 to promote sustainable investment by providing incentives and relying on voluntary commitment by investors. Therefore, it considers that regulatory measures prohibiting, or stigmatising as “brown”, investments in companies, which are not in breach of any EU or national law, are wrong.  Instead, where the EU legislator regards corporate activities as open to criticism it should take appropriate action directly.
• Although BVI is in favour of an EU-wide Eco-Label, it fears that the eco-labelling criteria are far too ambitious. This is particularly true of the thresholds being discussed for green investments in accordance with taxonomy and of the long lists of exclusion criteria. These would considerably restrict the investment universe and with it risk diversification.
• BVI sees the risk of overlapping, inconsistent and fragmented sustainability rules. For example, the timing of the application of SFDR does not allow for proper implementation of ESG disclosure requirements. Due to the time gap between the application of disclosure requirements for financial products and the availability of the necessary relevant corporate data, there is a risk that sales of sustainable products will to be discontinued.
• In future, asset managers will be subject to the requirements of the EU Disclosure Regulation and the Taxonomy Regulation, among others. However, in order to incorporate ESG factors into their investment decisions and to correctly assess the sustainability risks and opportunities of their investments, it will also be necessary to revise the EU requirements for non-financial reporting by companies. Companies must be required to publish comparable information on their economic activities and the resulting impact on the sustainability factors.
• Small investors who are indifferent to sustainability criteria, or who even explicitly state that they are only interested in financial returns, should not be pushed into sustainable investment products. This contradicts the basic approach of the EU Action Plan to promote voluntary investment in sustainable activities and to create incentives to achieve this. Ultimately, it must be up to the investors to decide if they want to finance sustainable projects by way of their investment.

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