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28.02.2018 12:06 Age: 292 days
Category: Blog entry

COMPLIANCE WITH EU INVESTOR PROTECTION RULES SHOULD CONSTITUTE A KEY REQUISITE FOR GRANTING SUSTAINABLE FINANCE LABELS

Whereas the report of the European Commission’s High-Level Expert Group (HLEG) on Sustainable Finance constitutes a step in the right direction to promote a cleaner and fairer economy, it essentially fails to adequately address information and governance issues for sustainable finance products.


EU citizens as pension savers and individual investors are, by their very nature, strong supporters of ‘sustainable finance’: they are parents and citizens who want to leave a greener and better planet for their children, whose main saving goals - such as retirement, housing and transmission of wealth - are long-term oriented and need a sustainable economy and environment.

The final HLEG report rightly widens the scope of sustainable finance to include social and governance issues besides criteria on environment and climate change, but it fails to include any reference to the most basic of requirements for sustainable finance, i.e. fair, transparent, clear and non-misleading investor information. In this sense, the report does nothing to address the trust of EU citizens as savers and investors.

For EU citizens, the concept of sustainable finance should translate into products that are exemplary in terms of compliance with EU investor protection rules. Unfortunately BETTER FINANCE research revealed that some products labelled as “sustainable” do not comply with EU investor protection rules at all.

It is essential that ESG-based finance be trustworthy and reliable. What should be avoided at all cost is for ESG criteria to be misused in order to circumvent investor protection rules or even dissimulate falsely active management. In this respect, the final HLEG report ignored the advice from BETTER FINANCE to avoid using ESG-specific benchmarks, since there are almost as many definitions of sustainable investments as there are investors. Such benchmarks can only further increase complexity and lead to confusion and misleading information. Sustainable finance providers should instead ensure that EU savers are clearly informed about the impact of using ESG criteria on their actual long-term real performance by benchmarking it to that of a corresponding, far better known and simpler mainstream capital market benchmark. After all, the performance of sustainable finance investments should prove to be better in the long run.

Regarding these “mainstream” benchmarks, BETTER FINANCE was pleased to note that the HLEG is also recommending the use of broad equity indices instead of the very narrow ones typically referred to by the industry, by the Authorities and by the media.

BETTER FINANCE is in favour of establishing an EU-wide SRI label, provided that such labels avoid the mistakes of existing labels that do not take investor protection into account. Sustainable finance must refer to finance that ensures “long-term and sustainable value creation”, and that applies ESG criteria, especially governance and transparency ones, to its own practices. In fact compliance with EU rules on fair, clear and non-misleading information should constitute a key requisite for granting any ESG or SRI label.

More information:

  • European Commission: Final report of the High-Level Expert Group on Sustainable Finance
  • BETTER FINANCE Press Release: BETTER FINANCE Welcomes EC Roadmap towards a More Sustainable Economy but Once Again Deplores Failure to Take the Interests of EU Citizens as Pension Savers and Individual Investors into Account

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