Sustainable Finance

At the beginning of 2021, hopes were high that the European Commission would change the world of green investing. 

A new science-based definition of what is truly green, aka the Taxonomy, to fight greenwashing and to provide certainty to investors, was to be delivered.

A new set of binding corporate disclosures, to allow us to assess corporations’ true performance when it comes to sustainability, was also on the cards.

A new set of binding disclosures for investment and pension funds, to allow us to assess how genuine the ‘green promises’ (that populate everyone’s marketing materials nowadays) are, was also expected.

Importantly, there was supposed to be the launch of a legislative initiative intended to bring some order to the chaos of methodologies and misrepresentations known as ESG ratings.

Twelve months later and none of this has actually happened. As if to underline this string of failures, on New Year’s Eve 2021, the Commission shattered all hopes of a Taxonomy worth the paper it was written on by including gas and other environmentally damaging activities in the ‘green list’.

All is not lost (and we don’t give up easily). So here’s a list of what T&E worked on and the issues that still need action.


Toxic Taxonomy

For the better part of the last three years a large group of experts, including T&E, worked on behalf of the European Commission to create a list of ‘green activities’, also known as the Taxonomy of environmentally sustainable investments. The list underwent a public consultation in December 2020 during which environmental experts from far and wide contributed their knowledge to make it greener and smarter.

Then one morning in April the green taxonomy started to unravel. Renewables and EVs were still there, but someone had sneaked in gas buses, dirty cargo ships and the burning of forests. In its first delegated act, to pay homage to a number of tenacious lobbies (thank you Finland), the Commission laid waste to the experts’ work.

Then, on New Year’s Eve … the biggie: gas and nuclear made it on to the green list, destroying the remaining credibility of the initiative. With the gas-Act, quickly renamed the Putin-Act, the taxonomy went from a pioneering and bold attempt to clean up finance, to a dangerous tool for greenwashing. The credibility of the taxonomy is now in tatters, as is that of the Commission President Ursula von der Leyen. T&E has a big fight in 2022 to get the bill vetoed in the Parliament. Not easy, but not impossible.

Things you always wanted to know about Coca-Cola and Adidas but you never dared to ask

Corporate sustainability disclosures is a file as big as it gets. The new directive was launched in April 2021 and will be soon in trilogue. It defines the information corporations must disclose in the area of sustainability. 

These will be compulsory KPIs, kilos and grams and parts per million of pollutants, emissions, habitats and species affected, gender pay gap, and ethnic composition of the workforce. Hard numbers, not the fluffy promises we get today in the green and pink section of annual reports with, invariably, lots of windmills and children from low income countries. The file is still open and the details (the KPIs) will be crafted by an organisation, EFRAG, that has recently opened its doors, timidly, to civil society. A big fight to fight.


Things you wanted to know from Allianz and Blackrock

The disclosures for investment funds have somewhat disappeared from the public debate and are yet to be finalised. The new Sustainable Finance Disclosure Regulation lacks technical standards, without which it remains directionless. We need the details to be confirmed asap, so that the few meaningful environmental KPIs that remain can become law.


ESG or Embarrassingly Skewed Guidance?

Environmental, social and corporate governance (ESG) ratings are the true compass for most investors right now. They drive the market and they are steering it in the wrong direction. If you’re not familiar with the issue, according to S&P, Shell and Total are among the 10 most sustainable corporations in the world.

ESG methodologies need reforming and proper legislative guidelines. The Commission was supposed to launch an initiative on the topic. Now all is postponed to 2023. 

It feels like we’ve worked very hard, and got very little. It has been a disappointing year for sustainable finance in Europe. But then you look outside of Europe and realise that there’s even less going on elsewhere. The US, the world’s leading capital market, is still struggling with basic corporate climate disclosures.

It should not be this hard to get transparency into capital markets.