The European Commission-appointed High Level Expert Group (HLEG) on sustainable finance should come up with a definition of sustainability in time for its final report, it has been suggested.

Commenting on the group’s interim report – published last Thursday – Filip Gregor, head of responsible companies at law firm Frank Bold, said defining sustainability was “indispensable for developing effective policies”.

Such a definition was missing from the HLEG interim report, and the group should be encouraged to address it in its final report, he said.

In a briefing on the interim report, Gregor wrote: “This definition should build on the concept of both social and planetary boundaries and relevant international agreements such as the Paris agreement on climate change and the international human rights law contextualised in the UN Guiding Principles for Business and Human Rights.”

Speaking to IPE, he said HLEG had produced a good report and his comment was not meant as a criticism. A lack of definition was “not just a problem of the report, but of the debate on sustainability in general”, he said.

“We do understand what we mean by [sustainability], or we know that we need to improve in certain areas, but we rarely speak about what would it actually mean – perhaps with exception of climate change-related policies and practices,” he said.

It would be helpful if the HLEG could at least in some areas specify what sustainability “should look like in terms of the final result”, Gregor said.

With respect to human rights this could mean “zero involvement in any kind of human rights violations, which are typically hidden in supply chains,” he said.

“One needs to have a clarity of the ultimate goal to be able to set policies properly,” he said.

In its comment on the HLEG’s interim report Better Finance, a European consumer finance campaign group, said sustainable finance “suffers from a lack of clear, consistent and mutually agreed definitions”.

In its report, the HLEG specified what it believed was the fundamental purpose of a sustainable financial system, and provided definitions of sustainable finance.

One of its recommendations also effectively acknowledged the need for more clarity about what ‘sustainable’ meant, with the group suggesting that the European Commission develop an EU classification of sustainable assets “that captures all acceptable definitions of ‘sustainable’”. 

‘Forget terminology’?

Adrie Heinsbroek, head of the responsible investment team at NN Investment Partners, suggested investors should “forget terminology” and “follow the bumblebee” instead.

In a written comment published today – but not explicitly in response to the HLEG report – Heinsbroek said: “Just as a study of the laws of aerodynamics is of little or no use in understanding how a bumblebee flies, an extensive and in-depth semantic analysis of an investment opportunity’s projected societal or environmental impact is rarely if ever needed to recognize and act upon its ESG potential.”

He argued that the evolution of responsible investing and the integration of environmental, social and governance (ESG) factors ran the risk of being side-tracked by long-running discussions about the need for a “common framework”.

“The discussions evolve around the thought that such a framework needs to establish quantifiable definitions of terms like ‘ESG’, ‘sustainable development’, ‘responsible investing’, and ‘impact’ before asset and fund managers can use them in describing their strategies and products,” he said.

Heinsbroek advocated a more pragmatic approach of “simply call[ing] it as we see it”.

“One can assess the ESG credentials of a listed company, a bond issuer or a public works project without a protracted discussion about which terminology should or should not be applied when describing them or investing in them,” he said.

The European Commission is holding a public hearing on the HLEG’s interim report tomorrow.