EU consensus on green finance?
On Tuesday, December 4th, 2018, the ECOFIN (Economic and Financial Affairs) Council approved three measures on green finance as part of the review of the "risk reduction" legislative package of the banking system. Following the dialogue with the Council and the European Parliament, the 28 Ministers of Economy and Finance supported three amendments to the Regulatory Capital Directive and the Capital Requirements Regulation on green finance.
They supported a mandatory ESG reporting by major banks and the request of two reports from the European Banking Authority on potential “green” and “brown” factors and the integration of ESG risks into regulators' assessments.
The three ECOFIN amendments address the following issues:
- The mandatory publication of ESG risks by major banks within three years of the adoption of the regulation is proposed to include physical and transition risks, and to be disclosed annually the first year and biannually the second year and thereafter
- It is proposed that the European Banking Authority issues a report within two years on the possibility of “green” and “brown” factors on capital requirements, which could encourage banks to lower the capital weight required when they lend to green assets and penalise banks by imposing an additional capital cushion on them if they lend to carbon-emitting companies.
- A potential integration of ESG risks into the analysis and assessment carried out by financial regulators is proposed to be assessed within the next two years and could lead to a renewal of analysis in financial regulation.
These measures echo for example the conclusion of the notable speech by ECB Executive Board Member Benoit Coeuré on November 8th, stating “a unified framework is a gravitational force needed to finance the greening of our economy”.
Félix Fouret, Carbon/Climate Analyst
Sources: Beyond Ratings, AEF info, ECB