Designing the right framework for sustainable finance

• Banks are committed to sustainable finance
• Essential to introduce measures in the correct order

As part of its Action Plan on Sustainable Finance, the European Commission has today issued the first concrete legislative proposals. These concern above all the legal framework for a future classification system for sustainability and additional obligations for the provision of investment advice.

“Market dynamics in the sustainable finance sector are already strong,” said Christian Ossig, Chief Executive of the Association of German Banks. “The banks are already exploiting the opportunities outlined in the action plan.” If the market was to continue to grow, it would be key, however, to implement the measures in the action plan in the right order. The first step should be the development of the taxonomy, followed by an empirical analysis. Only then should any necessary regulatory action be taken. “This as yet delicate new shoot needs enough space to grow,” explained Ossig. The design of the legal framework for the future sustainability classification system was a first and important phase, needed to ensure appropriate guidance would be available in the future.

The European Commission has also proposed immediate amendments to the new Markets in Financial Instruments Directive (MiFID II) with a view to requiring sustainability considerations to be included in the advice provided to retail investors. Ossig considers this measure premature. He pointed out that MiFID II, with all its associated changes for customers and banks, had only entered into force at the beginning of this year. The proposals put forward today would require extensive additional adjustments. To encourage greater acceptance by investors and banks, it would be better for the Commission to include its proposed modifications in the upcoming MiFID II review.

Ossig stressed that banks were ready to play their part in making the European economy more sustainable and competitive. Overlaps with only recently introduced or amended legislation such as MiFID II should be avoided, however, as these would be more likely to hinder rather than help the sustainable finance project.