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Three steps towards Europe’s sustainable financial system

CDP (formerly the Carbon Disclosure Project) measures the environmental impact of investors, companies and cities and looks at how they can take action to build a sustainable economy. The organisation's director of policy and reporting, for CDP Europe, Mirjam Wolfrum, gives her take on the European Commission's recommendations for a more sustainable European financial system (see EU sets out roadmap to a green, clean economy)

The Commission's final report, published last month, sets out strategic recommendations for a financial system that supports sustainable investments. Mirjam Wolfrum highlights the CDP's three takeaways from the report, noting:

  1. a shift to long-term risk management;
  2. environmental reporting is going mainstream; and
  3. we're close to a green fund future.

Some of the interesting points highlighted by Wolfrum include:

  • Only 5 per cent of European pension funds currently consider climate risks and the report recommends that investors integrate long-term climate risks into their legal fiduciary duties. Wolfrum writes: “Embedding these long-term environmental risks into decision making and being encouraged – through regulation – to give forward looking analysis will be critical for our financial system to support a well-below 2-degree pathway.”
  • The EU is moving steadily towards meaningful mandatory disclosure of climate information in financial reports. This is expected to be done through the revision of the Non-Financial Reporting Directive (NFRD), in 2018/2019. But Wolfrum emphasises how important it is that this timeframe is maintained so that EU rules become aligned with the recommendations of the Taskforce on Climate-related Financial Disclosure’s (TCFD) by 2021.
  • Retail investors hold 40 per cent of the EU's total assets and they will be crucial in steering the EU towards greener investments. Wolfrum explains that these investors need to be able to understand a fund's climate-related impact and that Climetrics (the CDP's climate-impact rating for investment funds launched in July 2017) will be “a critical lever for long-term climate action”.  

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