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Ecolabel, a sustainable warranty

New measures to make companies more transparent about sustainability.

by Maria Pia Rossignaud
30 September 2020
6 min read
by Maria Pia Rossignaud
30 September 2020
6 min read

The European Union remains committed to sustainability and is coming out with two big new measures to make companies more transparent about their investments: an Ecolabel for financial products and a single EU register of ESG (environmental, social and governance) data for anything concerning sustainability or having a potential environmental impact. Three EU agencies contributed to this new move, namely the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA), which all monitor highly sensitive areas like financial markets.

One of the initiatives involves ESG data, which is collected on a platform that provides transparency on firms that pursue Responsible Investment. These are companies that prioritise sustainability, environmental and social issues –as well as the UN's Sustainable Development Goals– alongside traditional financial objectives. The aim of the EU agencies is to establish a single European database containing all this ESG data, so as to have a public platform where data from companies, authorities, central banks and universities can be checked. Data collection will be subject to a shared guidelines, that must inevitably be based on a robust regulatory infrastructure to enable the management of risks. The intended result should provide a strong incentive for sustainable finance by providing a common data pool to draw on and a quality standard to comply with.

In the old country

Creating a label –the other new initiative– will allow anyone to identify the most ethical companies. In truth it’s a matter of making an existing practice official; voluntary certification with a particular focus on the above three topics already exists for companies, the most widespread example being the SA8000; ISO 14001; EMAS; OHSAS 18001 e ISO 26000. The EU agencies’ work has prompted an identification label for green and sustainable European companies, which will make them recognisable as such even to small investors, who will easily be able to see which financial products are sustainable and which are not. The EU agencies’ work has prompted an identification label for green and sustainable European companies, which will make them recognisable as such even to small investors, who will easily be able to see which financial products are sustainable and which are not.

These two measures are steps down a political path that the European Commission has pursued vigorously since the start of its last mandate. In addition to investments in green energy, sustainability and recycling, the Commission, through its bodies, is considering a number of measures that aim decisively to change the energy and production structures of EU member states. The experts from the EU agencies have followed the suggestions of green finance experts in recent months, in the hope of significantly changing the face of European companies and giving more support to the Green New Deal which, as is well known, aims to achieve climate neutrality by 2050.

A tax for the emissions

With its conferences on energy, research and think tanks, the EU is looking to push its member states to come up with the ideal conditions for reaching the set goals. This is, for example, the background to the proposal to introduce so-called environmental duties, i.e. to put a price on CO2 emissions from goods imported into Europe. The legislators’ goal is to facilitate international trade in low-carbon products, helping create a common ground for ethical competition between industries on different continents. The first positive consequence would be industries being forced to adjust their standards and regulate their harmful emissions, to avoid paying higher taxes when they export their products.

The reforms, however, must be accompanied by adequate coverage and a real sea change in how public affairs are run. Which is why, at the end of next year, the European Investment Bank will block all funding for projects involving energy produced from fossil fuels and offer support for new EU objectives, which have the decarbonization process at their forefront. One of the main actions is raising funding for technologies that bring carbon use down to zero, expanding e-mobility and giving preference to investments in alternative sources to conventional energy. This would transform the future of the energy scenario, and strengthen interconnections between the EU’s member states, not to mention other countries.

A fair portal for all

The rest of the world isn’t standing idly by either; with similar goals in mind, the World Bank has launched a data platform with information on US companies’ attitudes to sustainability. The Sovereign ESG Data Portal is a free, open and easy-to-use online platform that provides users with environmental, social and governance (ESG) data at a national level. The thinking behind this portal is similar to that of the EU experts. It deals with 17 themes, selected to provide a balanced picture of policy performance and country conditions with 67 indicators, covering all 17 Sustainable Development Goals. The data are available for download in all World Bank countries.

Hiro Mizuno, financial expert and former CIO of the Government Pension Investment Fund (GPIF), the largest pension fund in the world, says on the World Bank portal: “although investors have long been aware that ESG information is relevant and, in many cases critical, for their investments –especially in developing countries– it has been a challenge for investors to make well-informed decisions due to lack of experience and data. This data portal will help them to accomplish this task”.

Also on the World Bank portal is a statement from George Richardson, Director of Capital Markets at the World Bank Treasury: “through our engagement with investors that buy our bonds to support sustainable development, we know of this market segment’s strong interest for improved information. Our team has worked very hard to meet this demand. This platform aims to channel more capital to sustainable development.”. There also strong interest from Europe and USA. International platforms for sustainable finance have been spoken about for a long time because increasing mobilisation is now everyone's priority.

The new language of sustainability