EU Expert Group Issues Recommendations Promoting Sustainable Investment

Formed in September 2016, the High-Level Expert Group on Sustainable Finance (HLEG) was given the objective of: “provid[ing] a roadmap towards a sustainable financial system that fosters sustainability in economic, social and environmental developments. The group will provide recommendations on how to ‘hardwire’ sustainability into the EU’s regulatory and financial policy framework and how to mobilize more capital flows towards sustainable investment and lending.”

Earlier this week, the HLEG issued its interim recommendations for establishing a financial system supporting comprehensive sustainable investment.  In summary, HLEG recommends the EU:

  1. Develop a classification system for sustainable assets
  2. Establish a European standard and label for green bonds and other sustainable assets
  3. Clarify that fiduciary duty encompasses sustainability
  4. Strengthen ESG reporting requirements
  5. Introduce a ‘sustainability test’ for EU financial legislation
  6. Create ‘Sustainable Infrastructure Europe’ to channel finance into sustainable projects
  7. Enhance the role of the ESAs in assessing ESG-related risks
  8. Unlock investments in energy efficiency through relevant accounting rules.

With respect to improving ESG accounting and reporting requirements, the HLEG supports the disclosures recommended by the Task force on Climate-related Financial Disclosures (TCFD), established by the Financial Stability Board (FSB).

Additionally, they call on the IASB to integrate sustainability into accounting standards.

The HLEG also suggests that the EU consider “inviting” the European Financial Reporting Advisory Group “to ask the IIRC [i.e., the International Integrated Reporting Council] to work on how sustainability factors can be captured in dedicated accounting standards, in addition to those for financial reporting.”

Lastly, the HLEG recommends that the EU “undertake analysis and seek practitioner feedback as to whether [certain] accounting treatment can hamper long-term orientation and equity investments in some sectors, and whether adjustments might be desirable…”

In the report, they specifically refer to IFRS 9 and other standards promoting market value accounting and reporting as “possibly” hampering corporate investments in equity.

The issued report is “interim.” They anticipate issuing their final report in December 2017.  While they work on their final report, the HLEG invites questions, comments and discussions.

A pdf version of the report can be obtained here.

 

 

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