Europe uses sustainable finance initiative to curb climate change

Europe is using its Sustainable Finance Initiative to fight climate change. But will it work? VitalBriefing Editor-in-Chief Simon Gray shares his expert insights on the matter.

With much fanfare, the new European Commission president, Ursula von der Leyen, has unveiled the continent’s “man on the Moon moment”: Europe’s Green Deal plan to to achieve carbon neutrality by 2050.

True, details of just how the EU plans to meet this challenging target will be revealed only in June. And Poland, where 80% of the electricity comes from coal, is holding back on committing to carbon neutrality until the EU earmarks more financial assistance to ease its transition.

Crucially, though, as the Trump administration sneers publicly at climate science, the EU is now formally on board for taking a global lead.

The Commission declared that to become the world’s first climate-neutral continent is “the greatest challenge and opportunity of our times”.

Its plan, announced in mid-December, includes investment in green technology, sustainable solutions and the creation of new businesses, acting as a catalyst for economic growth through a transition that’s “just and socially fair …[and] designed … to leave no individual or region behind”.

Immediate impact

Arguably, though, a less high-profile decision earlier that month may have a more immediate impact on carbon emissions and the environment.

On December 5, EU finance ministers and representatives of the European Parliament reached agreement in principle on the “taxonomy” of the Commission’s sustainable finance initiative: a common set of rules governing how to determine which activities can and cannot be counted as green investments.

The finance ministers’ accord still must be formally endorsed by EU leaders. But the road now appears clear for the full sustainable finance package to become EU law – and it could start influencing corporate behaviour in Europe and beyond well before the European Green Deal takes effect.

The Commission’s initiative features three elements, two of which were endorsed last year by the European Parliament and member states.

The first would require institutional investors and asset managers to reveal how they integrate — or fail to integrate — environmental, social and governance criteria into their risk management processes.

Green benchmarks

A second measure would amend the EU Benchmark Regulation by creating  a new category of standards comprising low-carbon and positive carbon impact measures to provide investors with better information on the carbon footprint of their investments.

The Commission also has proposed changes to subsidiary legislation to MiFID II and the Insurance Distribution Directive that would incorporate ESG criteria into the advice that investment firms and insurance distributors must offer individual clients.

But taxonomy has always been the most critical element. The biggest issue in sustainable or green finance is how exactly it’s defined. Critics argue credibly that the lack of standard definitions has led to an epidemic of ‘greenwashing’ – investment firms and other businesses spouting green principles without adopting meaningful changes to their energy use, carbon emission or waste practices.

Universal classification

The proposed taxonomy regulation would set the conditions and framework for a unified classification system that defines an environmentally-sustainable economic activity.

But it hasn’t been without dispute and controversy — which explains the delay in approval from EU member states.

Most notably, France sought to have nuclear power deemed a low-carbon source of energy. But Paris appears to have admitted defeat in the face of vehement opposition from Austria, Germany, Luxembourg and the European Parliament.

However, the finance ministers agreed to a “do no harm” provision expected to exclude nuclear power when detailed rules are drafted.

The deal would create three categories for sustainable investments: “green”, “enabling” and “transition”, obliging companies with more than 500 employees to reveal the extent to which their activities fit these categories.

Cost of capital

How will all this affect businesses? By intensifying pressure on fund managers and institutional investors such as insurance companies and pension funds to focus their investments on companies that meet the Commission’s criteria — and to withhold their money from businesses that can’t or won’t do so.

So, expect the cost of capital for fossil fuel-oriented companies to rise, affecting their profitably and undermining their ability to compete with rivals that embrace renewable energy.

Yes, there’s already plenty of activity in the green investment sphere. But the lack of common standards has proved a major drawback. With the possibility that EU standards become widely adopted around the world, the Commission’s taxonomy could become the gold standard that, at last, vaults the green economy to global acceptance.

How the EU’s green finance ambitions could revolutionise fund management

The European Commission will soon launch ambitious plans that would position the EU as a global leader in the reduction of carbon emissions and the transition to a more sustainable economy that can contribute to curbing climate change. On behalf of our client, KNEIP, VitalBriefing looks at how Europe’s green finance goals could be a gamechanger for the fund management industry.

Click here to read How the EU’s green finance ambitions could revolutionise fund management.

 

Monetary and Fiscal Policy Divide North and South Europe

VitalBriefing Editor-in-Chief Simon Gray discusses the worrying current state of monetary and fiscal policy in Europe.

Countries in the north and south of the continent are divided in opinion as to what they believe the role of monetary policy should be in stimulating the economy. Moreover, consensus cannot be reached regarding the fiscal rules governing participation in the euro, Europe’s single currency.

With both sides of the debate entrenched in their positions, US banks have been able to dominate global finance and even steal investment banking business from their European counterparts.

With the global economy facing a possible recession, how will Europe solve this inter-continental discord?

Read the full article on Toolbox.com.

Tackling cyber crime: Shared threat needs shared response

Cyber security has become a major worry for the banking sector. The digital nature of business has been accompanied by evolving risk dynamics that call for constant reassessment. Meanwhile, it’s easier for cyber criminals to mount attacks, endangering individuals and organisations of all kinds and sizes.

Due to the complexity of this segment, financial institutions must take measures necessary to protect themselves and their clients. ING, a client of VitalBriefing, has been laser-focused on the threat. To show its valued customers just how seriously it takestheir cybersecurity, the bank asked VitalBriefing to create a suite of articles on the subject. Click here to read one of them: Tackling cyber crime – A shared threat needs a shared response.

https://www.ingwb.com/themes/cyber-security-articles/tackling-cybercrime-a-shared-threat-needs-a-shared-response

What in the world is a Circular Economy?

The meaning of the circular economy 
For the past decade, the expression ‘circular economy’ – with its promise to generate a more sustainable, equitable and just world – has steadily gained international traction. It actually represents an alternative to an ill-managed, extraction-based global economy generating unprecedented changes in the global climate and depleting the world’s natural resources.

Circular economy is relevant to every element of society, culture and economy. Yet, what does it really mean? What are its implications? How profound is its implementation for your organisation – and personal way of life?

Consider this: A recent study compiled and compared 114 definitions of circular economy in order to provide the first quantitative interpretation. The conclusion: Circular economy “means many different things to different people.”

We have the good fortune to cover the issue for our clients, so before you become discouraged or overwhelmed, we can help with some answers.

Comparing circular and linear economy showing product life cycle. Natural resources are taken to manufacturing. After usage product is recycled or dumped. Waste recycling management concept.

 

The meaning of the circular economy 
For the past decade, the expression ‘circular economy’ – with its promise to generate a more sustainable, equitable and just world – has steadily gained international traction. It actually represents an alternative to an ill-managed, extraction-based global economy generating unprecedented changes in the global climate and depleting the world’s natural resources.

Circular economy is relevant to every element of society, culture and economy. Yet, what does it really mean? What are its implications? How profound is its implementation for your organisation – and personal way of life?

Consider this: A recent study compiled and compared 114 definitions of circular economy in order to provide the first quantitative interpretation. The conclusion: Circular economy “means many different things to different people.”

We have the good fortune to cover the issue for our clients, so before you become discouraged or overwhelmed, we can help with some answers.

 

What is the circular economy?
Briefly, the circular economy is “a regenerative economic model.” Its purpose is to examine complex human behaviour and provide insights into a better allocation of resources. It’s holistic, taking into account the energy and materials we use, the ecological limits of our environment, and most important, people’s well-being.

In short, the circular economy seeks to create a system to meet our current needs while respecting the limits of our planet’s resources.

How does the circular economy function?
In this “regenerative system,” consumers and producers work together with policymakers at every level to generate environmental quality, economic prosperity and social equity. How does that happen? With an economic model that aims to retain as much value of products and materials as possible.

To get there involves refurbishing, remanufacturing, best re-use and recycling of the products and materials the world uses. The goal is a world without end-of-life of products and materials, reducing the generation of waste to its absolute minimum.

What does a circular economy strategy look like? We’re glad you asked:

– Waste virtually doesn’t exist. Products are designed to be disassembled and reused or, failing that, recycled. Long-lasting design ensures reduced energy use.
– Products components are categorised either as consumable (returned safely to the biosphere) or durable (designed for reuse and/or recycling).
– The energy required to power industry is renewable.

When is the circular economy arriving? 
It’s already here, permeating all sectors of the economy (which is why we at VitalBriefing cover it for our clients). You can find it in the products you consume, from cheese to smartphone, from clothing to the materials used to build your house.

The circular economy goes beyond strategies for reducing, re-using and recycling. It’s about generating an industrial ecosystem where these and many other strategies infuse every stage of products and services. Every day, we find a new company going circular, reducing the waste from its production, and collaborating with other circular-minded companies to create a healthy environment for their business and the world.

A few examples:

Luxembourg’s ArcelorMittal recognised for circular economy initiatives
ArcelorMittal has been recognised by the World Economic Forum for its ambitious circular economy efforts. The global steel group’s initiatives include paving more than 400 miles of Brazilian roadway with a product consisting mainly of waste steel slag, manufacturing a profitable low-carbon cement also from waste slag and pioneering steel re-use in structures. It has been producing steel in Luxembourg from scrap waste rather than primary raw materials for a quarter-century.

New businesses exploit massive seafood waste 
With about 40% of all seafood going to waste in an industry that has grown enormously over the past 50 years, new companies are starting to exploit seafood waste by-products in unusual ways. Ideas include applying fish skins as a treatment for burns, using fish scales in solar panel cells, and making salmon jerky from discarded fish meat.

IKEA trialing furniture rental and resale schemes 
Having won awards for its efforts to promote circular economy systems, Scandinavian flat-pack furniture giant Ikea is testing rental and buyback schemes in different parts of the world to cut down on waste. In Belgium, customers can re-sell, repair, or return their furniture, while in France and Japan, furniture can be returned to be sold in the store again.

To follow the circular economy more closely, or to have us help you follow the aspects that matter most to you, please contact: clientservice@vitalbriefing.com