A struggle between the few financial institutions that are pushing for an ambitious new European green finance policy framework and incumbent vested interests opposing it

New analysis from InfluenceMap warns 19 out of 20 industry lobby groups are actively opposing measures contained within the EU’s proposed Sustainable Finance Strategy. This article was published on the Business Green website.

 

Are ‘vested interests’ threatening the EU’s sustainable finance strategy?

EU efforts to establish an ambitious sustainable finance policy are being undermined by many of the organisations the policy would cover, according a major new report published today.

The study comes as the EU Commission is also facing criticism this week from green groups for including carbon sinks in its updated 55 per cent emissions reduction target for 2030 – raising fears it could undermine the effectiveness of moves to strengthen the bloc’s medium term emissions targets.

Carried out by climate analysts InfluenceMap, the latest research on EU efforts to implement an effective sustainable finance policy paints a picture of a struggle between the few financial institutions that are pushing for an ambitious new European green finance policy framework, and incumbent vested interests opposing it. It finds that only five per cent of the 63 financial institutions analysed in the report are strategically supporting European Commission sustainable finance policy, with 75 per cent either staying silent or issuing only high-level support.

Meanwhile, the study argues that 19 out of 20 industry lobby groups are actively opposing an ambitious outcome, with all but one of those surveyed lobbying the Commission to dilute and delay key regulations designed to align Europe’s financial system with the Paris Agreement.

The findings are published as the European Commission works to finalise a Renewed Sustainable Finance Strategy, building on the EU’s current Action Plan on Sustainable Finance to take into account both the plans for a European Green Deal and the need to recover from the impact of the Covid-19 pandemic. Having consulted on possible next steps over the summer, a proposal for the renewed strategy is expected in the fourth quarter of 2020.

As this process unfolded, InfluenceMap assessed the financial sector’s engagement with a range of critical sustainable finance policies, including a proposed new taxonomy, sustainable finance disclosures regulations, climate benchmarks, and non-financial reporting rules. This generated A to F scores for 20 industry groups and 63 financial institutions based on over 2,000 pieces of evidence, including detailed regulatory consultation submissions.

“The vast majority of the financial sector is allowing sustainable finance policies to be watered down by incumbent interests in the fossil fuel value chain due to skepticism of robust regulation,” said Rebecca Vaughan, an analyst at InfluenceMap. “These policies are critical for aligning the financial sector with the goals of the Paris Agreement, which they all nominally support. For the ambition of the Action Plan to be realized, the financial sector needs to deploy its lobbyists according to its top-line positions.”

The research reveals that while a small number of financial institutions are found to be actively pushing for progressive policy – including BNP Paribas, Aviva, and Groupe BPCE – most institutions have tended to offer high-level support for proposals to advance sustainable finance, but have rarely engaged at the detailed, tactical level where the final form of regulations are decided.

Moreover, InfluenceMap accuses many of the industry associations representing relevant sectors have actively sought to undermine the proposed regulations. These bodies tend to offer high-level support for green finance policies, while lobbying on to weaken the stringency of proposed regulations, the report claimes. It details examples in the cases of a number of powerful finance industry associations, including the European Fund and Asset Management Association (EFAMA), Association for Financial markets in Europe (AFME), and the European Banking Federation (EBF), all of which pushed back against the expansion of the policy’s taxonomy to cover environmentally harmful activities, arguing it should be limited to financial products marketed as sustainable, rather than being applicable to all financial products.

Furthermore, groups like BusinessEurope and EuropeanIssuers have been highly engaged with the proposed taxonomy and the non-financial reporting directive to resist requirements on investee companies, the report adds. Sector-specific groups, including the International Association of Oil and Gas Producers (IOGP) and FuelsEurope, have also lobbied to weaken specific ‘green’ thresholds to include their sector’s activities, it adds.

“The greatest pushback from finance industry associations appears to be in areas that would either increase transparency of financing of damaging activities (e.g. the expansion of the taxonomy to cover environmentally harmful activities) or require consideration of ESG factors in mainstream financial decision-making (e.g. updating investor duties to incorporate ESG issues),” the report observes. “These are also the areas where the least progress has been made in the Action Plan.”

The report comes at a time when the debate over the Commission’s sustainable finance plans are continuing, with even some green finance experts divided on the precise details of how the proposed taxonomy should work. Some have argued any financial product carrying a green label should be tightly limited to green industries, but others have argued that such tight restrictions could limit innovation and undermine investment in polluting industries that need to access capital to deploy new low carbon infrastructure. Similarly, controversial but potentially low carbon sectors such as biofuel, biomass, and nuclear are also concerned about the potential for a restrictive taxonomy to lock them out of the fast expanding green finance sector.

Meanwhile, beyond sustainable finance, a similar debate is raging over recent changes to the European Commission’s broader climate targets – specifically its newly updated goal to cut emissions by 55 per cent by 2030.

The new goal was announced last week, prompting widespread praise as the EU moved to strengthen an initial target to cut emissions by 40 per cent by the same date.

However, some green groups have now criticised the updated target’s fine print for bringing carbon removals from agriculture, land use, and forestry into the new target, arguing that this “accounting trick” would make it easier for the bloc to meet its 2030 goal.

“Relying on forests to reach climate targets sends the wrong signal that it’s OK to keep polluting because the land will absorb it,” Sam van den Plas, policy director at Carbon Market Watch, an environmental NGO, told media network Euractiv.

“The Commission is greenwashing its own climate target: including carbon dioxide removals in the calculations means emissions will actually go down by a lot less. We’re facing a climate emergency, and there isn’t time for games,” Alex Mason from the WWF also told the news agency.

Forests are currently a net carbon sink in Europe, but their capacity to absorb CO2 has been declining due to harvesting and negative impacts from natural hazards such as fires and pests exacerbated by a changing climate and growing demand for biomass. As a result, the European Commission has emphasised the need to restore healthy forests as a key part of meeting the continent’s climate goals.

Environmental groups obviously support this intention. But they highlight the inconsistency with the EU’s previous 40 per cent target for 2030 – which they claim did not take reductions from carbon sinks into account.

Writing for Euractiv, former IPCC climate scientist Bert Mertz affirmed that “the current EU target of ‘at least 40 per cent’ agreed in 2014 does not include sinks.

“Including sinks means that the new 55 per cent target would effectively be less than 50 per cent in the current target’s terms,” he wrote in an opinion piece for the pan-European media outlet. “We need to restore Europe’s forests and protect and restore our precious ecosystems, but that must be on top of greenhouse gas reductions, not instead,” Metz added. “The European “at least 55 per cent” target must be a real, absolute reduction target” and not a “net target, taking into account ‘reductions and removals'”.

The Commission has strongly repudiated the criticisms.  “If you look at the logic and the methods applied by UNFCCC, they all include carbon sinks,” Frans Timmermans, the Commission vice-president in charge of climate policy, told journalists at a press briefing. Timmermans suggested the error lay in not including carbon sinks in the earlier target, saying “you could wonder why we didn’t include it in the 40 per cent target at the time, because carbon sink is an important element in all of this”.

“I really dispute the idea that this would in fact mean only 50 per cent reduction,” Timmermans added.

However, officials subsequently acknowledged that taking into account the removals had raised the level of the target, which, without the removals, would fall to 53 per cent. Campaigners then responded by disputing this calculation, arguing that, depending on the scenario, the effect of including carbon sinks varied by between two and five per cent.

“This makes clear that including sinks in the 2030 target makes a significant difference – it means other sectors such as buildings, transport and agriculture won’t have to cut emissions by as much,” the WWF’s Alex Mason told Euractiv.

Both the debate over the EU’s medium term carbon targets and the disagreements over the precise details of the sustainable finance policies, further underscore the complex challenges that lie ahead as the EU seeks to meet its ambitious goal of becoming the world’s first net zero carbon continent by 2050.

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2 thoughts on “A struggle between the few financial institutions that are pushing for an ambitious new European green finance policy framework and incumbent vested interests opposing it

  1. I have pushed and highlighted from long time ago that Banks, should be forced by laws/regulations (like any industrial polluter which has to pay for GHG emissions !), to include in their portfolio on credits, a certain % for “green investments”…or, to count for the CO2 emissions reductions achieved by THEIR LOANS FOR SUCH INVESTMENTS.
    Those banks which do not comply should be penalised…like any other entity, for non compliance…or, their license/authorisation to be cancelled !…it is so simple !
    From my personal practice I can document banks which INTENTIONALLY REFUSES to finance green energy projects !…so, what are we talking about ???

  2. This is a really eye-opening study. Thanks for telling us about its’ existence. It really does emphasise how much more important actions are than words . If the banks aren’t delivering on their promises, then they really must be far better regulated, as Dragolin Caralin proposes..

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