The European Commission (EC) has launched a plan a for a “far-reaching reform” of the financial system that aims to boost the role of investors in pushing environmental, social and governance (ESG) principles in the corporate world.
The EC’s Action Plan is a set of broad legislative proposals for the European Union that includes the creation of a taxonomy of sustainable finance practices, mechanisms to “clarify” investors’ responsibilities and improve disclosure when it comes to responsible investing, and the improvement of transparency in corporate reporting.
The Action Plan aims to steer private capital towards sustainable investments and help states finance the move to a low-carbon economy, the EC said in a statement. The agency has estimated it needs 180 billion euros a year to reach its climate and energy targets as it replaces high-emission energy sources.
The announcement is based on recommendations laid out in January by a High-Level Expert Group on sustainable finance. Other EC objectives include:
• Creating EU-wide labels for green financial products.
• Requiring insurance and investment firms to advise clients on the basis of their preferences on sustainability.
• Incorporating sustainability in prudential requirements for banks and insurers.
Funds and investors turn to ESG strategies
The plan may provide further momentum to the asset-management industry’s turn to sustainability investing. More investors and clients are embracing ESG-aware strategies not just to foster a better and fairer world, but also because businesses that are managed responsibly can provide higher long-term returns.
Pension fund associations in Europe have warned the EC not to take a “prescriptive approach to ESG factors by institutional investors,” Investments & Pensions Europe magazine reported before the introduction of the Action Plan.1 The lobby groups argued that decisions related to sustainability should be left to the discretion and strategies of funds, rather than be prescribed by law.
A large suite of ESG indices
STOXX introduced the STOXX® Global ESG Leaders Index family in 2011 to track companies leading in sustainability policies. Today, STOXX has a wide selection of indices that allows for a targeted approach of strategies and returns. This includes almost 40 indices in the ESG and sustainability umbrella and more than 50 following low-carbon strategies.
1 ‘ESG: European Commission triggers unease with ESG approach,’ I&PE, March 2018.