Sustainable Finance - To be sustainable or not to be?

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Sustainable Finance - To be sustainable or not to be?

There is no question anymore

On 24 May 2018, the EU Commission has proposed four action points to be the first steps of the transcription of the 10 initiatives highlighted by the EU Action Plan on Sustainable Finance published on 8 March 2018.

The points are as follows:

  • Define a unified EU environmentally-sustainable classification system (“taxonomy”)—The objective is to provide economic actors and investors with clarity on which activities are considered sustainable in order to inform their investment decisions. It would help to ensure that investment strategies are oriented towards economic activities that are genuinely contributing to the achievement of environmental objectives, while also complying with minimum social and governance standards.
  • Introduce consistency and clarity on how to integrate ESG considerations into the investment decision-making process and how to report on them—This should ensure that financial market participants that receive a mandate from their clients or beneficiaries to take investment decisions on their behalf would integrate ESG into their internal processes and inform their clients in this respect.
  • Create low carbon and positive carbon benchmarks—The proposal sets out two new categories of benchmarks: a ‘low-carbon benchmark’ and the ‘positive carbon impact benchmark’. In a low-carbon benchmark, underlying assets would be selected with the aim of reducing carbon emissions of the index portfolio when compared to the parent index, whereas a positive carbon impact index only comprises components whose emissions savings exceed carbon emissions.
  • Include ESG consideration in suitability tests—The Commission is planning major changes by including ESG criteria into the currently existing MiFID II suitability process. MiFID service providers would have to collect a client’s ESG preferences and subsequently provide suitable ESG products.

This will alter the approach towards sustainable investments and will require action from asset managers, insurers, banks and institutional investors to ensure compliance with the rules set to come into effect.

If you are an investment manager, asset owner, institutional investors or service provider, you can find below the main questions to ask yourself and to assess the impact these actions may have on your organization.

Unified EU taxonomy - Have you defined sustainability and ESG in your related policy and are this definition already commonly adopted by the market?
Investor’s duties and disclosures - Have your investors already expressed their expectations on  ESG topics?
- Are you already able to report on the non-financial performance of your ESG product?
- Do you consider ESG risks in your decision process, how are you monitoring and reporting these risks?
- How do you report to your investors on compliance with your ESG criteria?
Low-carbon and positive carbon benchmarks - For index providers, are you ready to produce low-carbon benchmarks?
- For index users, have you thought about low-carbon products?
Include ESG consideration in suitability tests - Do you know the ESG preference of your clients?
- How will you incorporate these preferences in the investment recommendation process?
- How will you report to clients on how their ESG preference has been taken into consideration?


Considering that sustainable aspects will become a requirement for any investment firm, bank, and insurance company in the coming months, these regulation proposals need to be anticipated.

Our dedicated sustainability team, in connection with all our internal experts on current regulations, are ready to accompany you in your organization’s transition towards sustainable finance.

Should you need any assistance or wish to discuss with us any of these topics, please do not hesitate to contact us.

We will keep you informed of all futures developments on sustainable finance regulations.

Contacts

Tom Pfeiffer
Partner
Sustainability Services & CSR Leader
Tel. +352 45145 4246
topfeiffer@deloitte.lu

Simon Ramos
Partner
IM Advisory & Consulting Leader
Tel : +352 45145 2702
siramos@deloitte.lu

Guillaume Brousse
Director
Sustainable Finance Expert
Tel. +352 45145 2279
gbrousse@deloitte.lu

Pascal Martino
Partner
Banking Leader
Tel. +352 45145 2119
pamartino@deloitte.lu

Julie Castiaux
Senior Manager
Sustainability coordinator
Tel. +352 45145 3648
jucastiaux@deloitte.lu

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