Remarks by Vice-President Valdis Dombrovskis at the High-level conference: A global approach to sustainable finance

Honourable Ministers,

Excellencies,

Ladies and Gentlemen,

It is an honour to welcome you to Brussels and to this conference on a global approach to sustainable finance. We are joined today by international guests, Ministers, high-ranking officials, and other dignitaries who have travelled far. I would like to thank you all for being with us.

Last Friday, more than 1.4 million young people in 120 countries around the world took part in a record-breaking event. It was the first ever global school strike for the climate, and it sent a powerful message: climate change is a global threat, and we urgently need to work together to stop it.

My answer to young people and citizens around the world is clear: The European Union will stand by the commitments we have made under the Paris agreement. Already now, Europe is leading the fight against climate change: we have set ambitious legally binding targets for emissions reduction. And we agree on the need to transition to a climate-neutral economy by 2050.

As part of this agenda, the EU was also an early mover on sustainable finance. We quickly recognised that boosting private capital is essential for supporting the transition to a climate neutral and sustainable economy. And we have a very important asset - the single market - which will allow investors to scale up their green investments across the EU and outside it.

At the same time, we acknowledge that other jurisdictions have made important progress too. So this conference is an opportunity to learn from each other, and combine our efforts. Seeing what we have achieved individually, I believe that sustainable finance can be truly transformational if we join forces.

But before I get into the global dimension, let me say a few words on where we are, and how we got here.

When President Juncker asked me to take over the financial services portfolio of the European Commission, it was only about six months since the Paris agreement had been signed. The focus was on how to implement the Paris agreement target of keeping global warming to well below 2 degrees Celsius.

It was clear that this would require massive investment. According to the OECD, the world needs about €6.2 trillion of investment by 2030 to limit global warming to 2 degrees. And we know that we need to be even more ambitious than that.

But these amounts are beyond the capacity of the public sector. And the burden of funding the greatest economic transition in our time must be shared broadly. So the private sector also needs to contribute.

At the same time, we saw a growing demand for sustainable investments. For many, it is becoming unacceptable to invest in companies that pollute, or do not pay fair wages to their employees.

In this situation, scaling up sustainable finance was the solution. This way, we could help the market play the role of match-maker between the demand and supply of low-carbon investment. More of the funding burden would be shifted onto investors looking for opportunities, and less on the public purse.

That is why less than three years ago we formed the High-Level Expert Group on Sustainable Finance under the excellent chairmanship of Christian Thimann. In the space of a year, they produced a breakthrough report on how to transform our financial system, so it works for the benefit of society, environment and planet. I am very grateful to them for their excellent work.

On the Commission side, we decided to act on their recommendations immediately. In March 2018, the Commission adopted a 10-point Action plan which set out our strategy for a more sustainable financial sector. And we followed it up with three legislative proposals, two of which have already been agreed at EU level.

This happened very fast. In just over two years, we have created a completely new body of EU legislation from scratch.

For the transition to a climate-neutral economy, investors need transparency on the risks. Therefore I am pleased that we have recently agreed on our proposal to strengthen disclosure obligations for investment managers and financial advisors. This law requires those who invest money on someone else's behalf to disclose how they take environmental, social and governance aspects into account.

I am also pleased about the political agreement on another important proposal - creating low-carbon investment benchmarks. This will create two new categories of low-carbon benchmarks: a climate-transition benchmark, and a benchmark for investment portfolios in line with the 1.5˚ degree target of the Paris agreement.

Last but not least, at the heart of this body of legislation is our classification system for green economic activities - or taxonomy. Attracting capital to economic activities that mitigate climate change is our main priority. With the taxonomy, we are hoping to translate EU and international environmental, climate and energy standards into a language that can be used by investors everywhere. That way, they can more easily channel their funds into sustainable and green projects.

At the same time, we want to protect EU consumers and investors from greenwashed financial products. So the taxonomy will provide common definitions for what is a green investment, based on scientific evidence. The taxonomy will also cover activities that can substantially reduce the negative impact of currently polluting sectors. This is where the highest potential for emissions reduction is.

And then, we also intend to broaden the scope of the taxonomy to include social and governance aspects.

Ladies and Gentlemen,

I believe everyone - across the political spectrum - shares the same responsibility in reducing our emissions and transitioning to a more sustainable economy. Our taxonomy proposal has made good progress in the European Parliament, so I am hopeful that it will be successfully voted in the plenary next week. And I hope we can reach a political consensus also in the Council in the coming months.

Now the next major step will be in June. Our Technical Expert Group will publish a package of recommendations that will inform sustainable finance practices for many years to come:

First, they will publish their report with guidance on the EU Climate Change taxonomy.

Second, they will finalise the report for the first ever EU green bond standard. We have seen that demand for climate-friendly bonds is much greater than the available offer. For example, demand for Ireland's recent €3 billion green sovereign bond was for over 11€ billion. Common standards will lay the basis for offering retail investors EU-labelled green investment products in the future.

Third, they will publish advice for the methodologies of low-carbon benchmarks, to add the final touches to the recently agreed legal proposal.

And finally, the Commission will publish the revised guidelines for companies to disclose non-financial and climate risks, based on the January recommendations of the Technical Expert Group. We will align our guidelines with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Companies will be asked to report not only on how climate change might influence their performance, but also on how their activities impact the climate.

I would like to take this opportunity to appreciate the broad scope and high quality of the work that the Technical Expert Group has covered in the last eight months. Their expertise greatly contributes to our mission of making green finance the new normal.

Now, let me turn to our main focus today, which is the global dimension of our work on sustainable finance. With these initiatives agreed or in the pipeline, we are well on our way to scaling up sustainable finance in Europe.

But that alone is not enough. Sustainability challenges are global: climate change, and often also environmental degradation do not respect borders. And the lack of funding to solve these challenges is world-wide.

So I believe it is time to cooperate globally on sustainable finance, between public and private initiatives, among institutions and among countries. We have seen great developments internationally - from China, India and Hong-Kong, to Chile, Canada and Kenya and Morocco.

Now is the time to coordinate our policies and align these initiatives across jurisdictions. In this way, we can help investors and issuers, markets and governments to follow common rules and benefit from similar incentives. This would also offer new opportunities to companies and businesses linked to global sources of funding.

I believe that the Coalition of Finance Ministers for Climate Action is setting a great example on incorporating climate change and environmental issues into the macro-economic policy agenda for Finance Ministers. Already, they have mobilized more than 30 countries.

Indeed, public funding can incentivise private investment - especially in emerging markets. This way we can boost cross-border green investing. I would like to warmly welcome two of the leaders of this initiative who are present here today: Mr. Petteri Orpo - Finance Minister of Finland, and Mr. Cyril Muller, Vice-President of the World Bank.

Last night, I had the opportunity to exchange views with a number of like-minded colleagues. I saw great willingness to go forward together. And we agreed to keep working together towards an international network on Sustainable Finance.

We would start with exchanging best practices on sustainable finance policies and how they are applied.

Then, this group of committed countries could work together on joint actions: to boost green bond markets, to create labels for green financial products, and to harmonise our approaches on climate- related disclosures.

This group should work closely with other international initiatives that drive progress on the ground, such as the Central Banks and Supervisors in the Network for Greening the Financial System and the Financial Centres 4 Sustainability Network.

These joint actions should lead to concrete deliverables for the UN Climate Summit later this year.

Ladies and Gentlemen,

The role of the financial sector in transforming our economy toward sustainability had been overlooked for too long. But as the French writer Victor Hugo once said: "you cannot resist an idea whose time has come".

And I think this encapsulates the situation of sustainable finance. Only three years ago, sustainable finance used to be a small niche. But today it is becoming a transformational force, also thanks to the supporting policies that many of today's participants have pushed through at home.

Now we need to do the same thing at the global level. I hope that many more jurisdictions - who are committed to sustainable finance like us - will join us in this effort.

It is time for sustainable finance to go global.

Thank you very much.

SPEECH/19/1788