Why the Financial Services sector & industry alike need to take notice of the EU’s most far reaching set of proposals since EMU
Characterised by some pundits as neither an exercise regime for the middle-aged nor a rather niche dating-app, ‘Fit for 55’ is the European Commission’s huge package of proposals to tackle climate change and energy use.
This really matters – to anyone living or working in the EU, and to anyone trading or planning to trade within the EU. Taken as a whole, and enacted in full, these proposals would fundamentally change the way of life for all citizens and businesses across Europe (and many beyond). The proposals cover everything from energy, land use, transport to energy taxation policy. Under these proposals at least seven existing EU laws will be revised, and as many as five new areas of legislation enacted.
This is the most far reaching set of proposals since EMU and the creation of the Euro in 1999; the role of the financial services sector will be critical here as it was then. Yet at the moment many public affairs professionals, especially in financial services, have their focus elsewhere. With so much at stake and so little time available, businesses need to engage in the process now.
The title ‘Fit for 55’ actually comes from the headline objective to reduce net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels; which is key to helping the EU realise its ambition to become the world’s first climate-neutral continent by 2050. The Commission’s proposals are now being worked on by MEPs and Council ministers. All sides say they want to reach agreement by summer next year, but the scale of change that is envisaged, the required government intervention and the increases in costs for individuals and businesses is unprecedented.
Finding consensus will not be easy. Whole industries will have to transition to greener business models and greener value chains. The role of sustainable finance will be paramount.
Finance has sought to lead the way
In many ways the financial sector has been taking a lead. Hundreds of billions of euros have been raised for green investment in the past two years, and since 2018, the European Commission’s Financial Services Directorate (DG FISMA) has been working on an action plan to finance sustainable growth built around three key building blocks:
- An agreed ‘EU Taxonomy’ – to say what counts as green
- A comprehensive mandatory disclosure regime – to signal how green you are
- A set of standards for Sustainable Finance instruments – to support a green market.
Conceptually the taxonomy is the link between Fit for 55 and sustainable finance. However, the taxonomy regulation, which entered into force in July last year, anticipated the actual goals for transition, meaning that in practice it might not be channelling finance in the right direction. One might say that DG FISMA’s enthusiasm to act early put the cart before the horse by defining green assets before the overall policy goals for the real economy had been determined.