On Tuesday 20 April, CEN (the European Committee on Standardization) and CENELEC (the European Committee on Electrotechnical Standardization) held an online webinar dedicated to exploring the role standards can play in scaling up the implementation of sustainable finance for the transition to a climate neutral economy and a more sustainable world.
The desired outcome of the webinar was to explore measures and developments to improve the efficiency and impact of instruments aiming at investment de-risking and support, mapping gaps between actions implementation, accounting of impact, and financial transparency and disclosure.
This year, EU leaders have agreed on the largest long-term budget of 1,8 trillion euros to leverage private investments in sustainable projects. This enormous effort must lead us to a decarbonised and sustainable economy addressing the systemic risks of climate change highlighted by the European Central Bank in its economic stress test published in early April. The COVID-19 pandemic has strengthened the need for a sustainable and integrated framework to ensure a green recovery from the crisis, and Sustainable Finance has become one of the top strategic priorities and a key driving force of economic growth.
The enabling role of standards can connect the drive of policy makers towards a carbon neutral economy with the business investment and finance sector needs. Many standards are already available and planned activities are underway, but gaps between performance standards, accounting standards and financial procedures on sustainable finance are still present and unaddressed.
In this context, the webinar’s outcome suggests as a way forward the creation of an “Enabler Working Group” led by the CEN-CENELEC Sector Forum energy Management and Energy Transition, with representatives of the EU Commission, Financial Institutions, Banking Authorities, Accounting Standards, ISO and other relevant CEN and CENELEC stakeholders in industries and civil society, to elaborate a common framework for standardization setters which could help policy makers and the finance sector to de-risk sustainable project and direct business investments towards the achievement of the carbon neutrality by 2050.
The workshop was opened by an introduction by Andrea Nam from CEN and CENELEC, who underlined the role of Standardization across Europe and its international dimension through the joint work the of International standardization organizations, ISO and IEC. In the specific field of sustainable finance, where Europe is taking a leading role towards the transition to a decarbonised economy, European Standards need to enable the deployment of the Green Deal and support the International Platform on Sustainable Finance.
Ms Nam’s intervention was followed by a keynote speech from Bettina Kretschmer (DG Environment, European Commission), who summarised the European Commission’s work on sustainable finance with a specific focus on the EU Sustainable Finance Taxonomy and its link to other ongoing initiatives, including the review of the Non-Financial Reporting Directive (NFRD). The different tools help investors and organisations to make informed investment decisions on environmentally sustainable economic activities and transparently report and disclose them to the market. The objective is to reorient capital flows towards sustainable activities and projects. The first Taxonomy Delegated Act was published on 21 April along with a proposal for a Corporate Sustainability Reporting Directive (i.e. the revision of the NFRD).
The second keynote speaker, Franz Knecht, Expert in Sustainable Finance at CONNEXIS (Switzerland) and member of ISO Technical Committees TC 207 “Environmental Management” and TC 322 “Sustainable Finance”, reviewed the state of play of ISO and CEN standards addressing the needs of investors, financial products and services and regulators. Mr Knecht noted how non-regulatory guidance available today can be grouped in ‘Good Practice Guidelines’, ‘Frameworks with Recommendations’, and veritable ‘Standards with Requirements’. He remarked that today financial markets increasingly need this third type of reliable and trustworthy ‘hard-wired’ process and outcome standards. The regulatory developments around the world are currently inspired by The ‘Good Practice Guidelines’ like the Global Reporting Initiative (GRI or the United Nations (UNEP FI and PRI), and the ‘Frameworks with Recommendations’ such as the ones from TCFD (Task Force on Climate related Financial Disclosure) and SASB (Sustainable Accounting Standards Board). He pointed out that the third type of guidance will be provided by the standards with clear requirements such as the Green Bonds and Green Tech Taxonomies. These will finally enhance in a systemic way the finance sector’s contribution to a more sustainable world via more resilient economic systems.
Mr Knecht explained that ISO and CEN have already developed standards helping define boundaries and evaluating outcomes, such as by determining and monetising the socioeconomics – costs and benefits – of environmental impacts, by enhancing the use of life cycle analysis and addressing climate change. Currently, standards are being developed on many relevant topics: new management systems and frameworks for sustainable finance and circular economy, green debt instruments and disclosure of climate action by investors. The aim is to contribute to what is most needed today, comprehensive and integrated sets of ‘hard-wired’ standards with requirements enabling assurance and verification that provide trust and stability to systems, and provide support to addressing the benefits and risks of an efficient and sustainable financial value chain.
The third keynote speech from Ettore Piantoni, CEN and CENELEC JTC 14 Chair and SFEM Vice Chair, addressed the architecture of technical performance standards and their alignment with the European Taxonomy and NFRD legislative provisions and metrics. Starting from the end-to-end tools of energy audit, to predict energy efficiency improvement, up to the measurement and verification of energy and environmental performance of organisations, standards enable the assessment of benefits and risks throughout the value chain. Performance metrics measurement are essential to turn technical indicators into business value: cash flow, risk management, stranded assets.
According to Mr Piantoni, sustainable finance criteria and performance standards have the same core value: ‘Materiality’. Materiality is connecting all the dots throughout the business chain. It is the starting point of any implementation measure at the organisational level and is embedded in the financial accounting statement of the reporting entity, in the sustainability criteria that create of erode the enterprise value and in its impact on the environment and society. We are moving towards an integrated framework where balanced and integrated scorecards with better data are needed: looking at a single KPI or metric is not enough to value the multiple benefits of sustainable finance and manage the risks. Digitalisation, Blockchain, Distributed Ledger will enable the integration between Sustainable Finance and Performance Standards.
Standards developed in support of the sustainable finance will serve as reliable tools in a fast changing world and will play a key role in improving the competitiveness and sustainability of the European economy both at national and international level. The achievement of these objectives is among the most important CEN-CENELEC’s 2030 strategic priorities.