Financing our green transition

We increasingly face the consequences of climate change. Recent weeks have seen extreme heatwaves, droughts and wildfires. And the climate crisis poses a significant threat to the global financial system. In a report published on 1 July, the European Central Bank and the European Systemic Risk Board warned that global GDP could fall by 20 percent before the end of this century if we do not mitigate climate change well enough.

We have a number of tools already in place for sustainable finance. There is the EU Taxonomy to define what is green, rules for companies to provide information on sustainability, and benchmarks, standards and labels to increase transparency and consistency.

But we now face new challenges, such as the recovery from the COVID-19 pandemic. Our ambition has increased with the European Green Deal. And there is more willingness to work together at a global level.

So this week the Commission is raising the ambition even higher on sustainable finance.

First, there is the new 'Strategy for Financing the Transition?to a Sustainable Economy'. It identifies four key areas to accelerate the green transition: helping to finance the economic transition to sustainability; making sustainable finance more inclusive, especially for SMEs and citizens; ensuring the financial system is resilient to sustainability risks; and stepping up global ambition.

The transition to sustainability will not happen overnight and requires significant investment. So we want to increase support for the intermediate steps. For example, we are considering an intermediate Taxonomy to complement the green Taxonomy – which would also allow us to develop transition bonds.

A more inclusive sustainable finance framework can help SMEs can access the finance they need for local projects and give EU citizens more sustainable ways to invest their money. For example, we are exploring harmonisation of green mortgages and green loans with the help of the European Banking Authority.

Our strategy addresses the impact of climate change on the financial sector and equally, the impact of finance on the climate. We want to ensure that ESG risks are systematically captured in credit ratings and rating outlooks.

We are looking at the global picture, so that international work is both coherent and ambitious. The EU is a leader in sustainable finance and we want to get more countries on board. We are looking forward to COP 26 in Glasgow in November, where climate finance will be top of the agenda.

Alongside the Strategy, we have a new European Green Bond Standard. Green bonds play an important role in raising finance for climate-friendly investment and the EU leads the way on green bonds, with about half of global issuances taking place in the EU in 2020. Today, green bonds represent only around 2 to 4 percent of the overall bond market.

The new European Green Bond Standard will provide a gold standard for the green bond market. Funds raised by the bond will be 100% aligned with the high environmental standards of the EU Taxonomy, with checks by external reviewers for verification. That means investors will be able to trust that their investments are sustainable, reducing the risk of green washing. And it will be open to any green bond issuer, including companies, public authorities, and issuers outside the EU, allowing them to demonstrate their environmental commitment and raise funds on capital markets.

Together, our new strategy and the EU Green Bond Standard will ensure the EU remains the world leader on sustainable finance – and will help bring the rest of the world with us.

We have no time to waste. The dramatic effects of climate change are already being felt. We need to make our financial system resilient, and ensure the financial sector plays its role in achieving our European Green Deal goals.