Standing on the shoulders of (sustainable) giants
There have been countless investor groups and campaigns set up to promote sustainable investment, but Christian Thimann, chair of the European Commission’s High Level Expert Group (HLEG) on sustainable finance, believes the group he leads has a “unique” opportunity to influence regulatory policy.
“Our value-add is the link between all the work that has been done before and all the legal texts that govern the financial system,” he tells IPE.
Thimann, also group head of regulation at AXA, claims it is precisely “because so much has already been done on the subject” that the group feels “great” about its work.
“We are standing on the shoulders of giants,” he says.
The group is distinct from all other groups and initiatives that have dealt with sustainable finance, Thimann says, because “this is the first group that is directly supported on a lasting basis by the European Union’s main financial regulator”.
“There is now a group on this subject that is working with the support of the regulators, so we’ll be getting serious on sustainable finance,” he adds. “There’s a great momentum in the group, because everyone feels this is a unique chance that has been given to us to work with the regulator.”
Comprising 20 individuals from different stakeholder groups, the HLEG is tasked with making recommendations for “a comprehensive EU strategy on sustainable finance as part of the Capital Markets Union”.
The expert group has now met twice, and recently published minutes of its second meeting, held in early March. These unveiled its thinking about “the key areas in building a sustainable European financial system” and the framework the group has adopted to guide its work.
Several of the issues mentioned in the minutes have been talked about at length in the institutional investment industry, such as the need to “adapt processes, incentives and culture across the investment and lending chain”.
The group will release its interim report around the time of the G20 Summit, taking place on 7-8 July. It will present its recommendations in December.
Sustainable finance building blocks
According to the minutes of the early March meeting, the HLEG “has identified six key areas in building a sustainable European financial system, all of which rely their own specific institutions, actors and actions but also are inevitably interlinked”.
The areas form the group’s work streams.
The group says the areas are not exhaustive, but are intended to cover “the largest structural challenges and mechanisms”.
Thimann simplifies the six areas into three:
- A shared vision and understanding;
- Integration of sustainability into the EU’s regulatory and financial policy framework, such as by “addressing structural obstacles and time misalignments”; and
- The mobilisation of capital flows towards sustainable investments, including expanding financial markets for sustainable assets.
“The topic of sustainable finance is so wide that we need to develop a shared vision and understanding,” says Thimann. “We have to define the framework and what we mean by sustainable finance.”
The Commission’s ambition relates to a financial system that “focuses on systematically addressing societal challenges” such as education, employment creation, the environment, and health, Thimann explains.
“The interesting thing – and this is why our topic is so fascinating – is that these challenges are also long-term challenges,” he says.
He says that the group is trying to come up with “a little bit more of an analytical framework” about what would constitute a sustainable financial system.
“What does success mean in terms of capital costs? In terms of orientation of flows? How can you tell that the financial system is sustainable or contributes to sustainable growth and development? That is what we are trying to do in this area,” says Thimann.