What emerges from the special report on climate change published by the Intergovernmental Panel on Climate Change (IPCC) (IPCC, 2018) is yet further confirmation of what we are all aware of: maintaining our current pace of waste and consumption is taking us perilously close to the point of no return to save planet Earth.
The Organisation for Economic Co-operation and Development (OECD) estimates that a total of US$6.9 trillion per year will be needed to achieve the objectives of the Paris Agreement on Climate Change by 2030 (OECD, 2018), which means that the solution to the climate challenge will, necessarily, pass through the economy; the financial world must develop new strategies to attract new investment.
Public and private capital must act together to finance the transition to a greener economy and to ensure the achievement of objectives in line with the UN Sustainable Development Goals (SDGs).
The appetite for investing in sustainable finance is growing in both individuals and companies. The latest edition of the Eurosif Study on Sustainable Finance in Europe has shown a significant progression from 3% to over 30% for the period between 2013 and 2017 (Eurosif, 2018), while the latest Global Sustainable Investment Alliance reports that the volume of sustainable investments reached US$31 trillion in 2018 (GSIA, 2018).
The growing attention given to green issues has made banks adapt their financial offerings accordingly. The Vice-President of the European Investment Bank (EIB), Dario Scannapieco, announced in a recent interview (Capozzi, 2020) that by 2025 the EIB’s commitment will be to increase by 20% the annual funding that positively impacts on climate and the environment, and to stop funding energy projects that burn standard fossil fuels. For its part, Moody’s indicates that banks issued a record US$121.8 billion of green, social and sustainable bonds in 2019, which represents an increase of 41% on the previous year (Moody’s, 2020), and Associazione Bancaria Italiana (ABI) recently announced that issuances in green and sustainable bonds by Italian banks have so far raised more than 2 billion euros, with a clear acceleration in the two-year period 2019-2020 (ABI, 2020).
The boom in the green bond market has also led to a significant growth in the issuance of this type of bond by financial institutions and companies, which amounted to around US$142 billion in 2019, with corporate issuances alone growing by 90% compared to the previous year (Stéphane Rüegg, 2020).
The article discusses the new European rules on sustainable finance whilst touching upon the below topics.
· The EU Green Bond Standard
· The European Action Plan
· Harmonizing Transparency Rules For Financial Markets – Regulation (eu) 2019/2088
· A Taxonomy Of Sustainable Finance – Regulation (eu) 2020/852
· Non-Financial Reporting (nfrd) – Directive 2014/95/eu