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10 June 2022

ESMA's Ross: Greening the financial markets: challenges and opportunities at the current juncture


.. to consider how the current context provides us with an opportunity for further greening financial markets..

...The conference covers a wide range of important topics, such as the future of capital
markets in the wake of the pandemic, the geopolitical crisis, and the future of
sustainable finance. I take the liberty of leveraging on those panels – hopefully without
pre-empting their conclusions – to consider how the current context provides us with
an opportunity for further greening financial markets. I will focus on the relevance of
associated regulatory action, including the challenges facing us as regulators and
supervisors, as well as the important role international cooperation has to play.

Current juncture


Over the past years, the EU has been taking bold steps to tackle climate change. This
has included unprecedented initiatives to build the foundations for finance to play its
role in the sustainability transition. Sustainability has been also a pivotal feature of the
EU's recovery from the COVID-19 pandemic, with the financial sector increasingly
channelling resources in a way that will help meeting the targets of the European Green
Deal.


The EU market for green, social and sustainability bonds stood at €1.2 trillion at the
end of March 2022, a 50% increase from a year earlier. The assets managed by EU-
domiciled ESG funds grew by 20% over the same period, to €2.1 trillion. These figures
indicate significant market growth for these products.


Nevertheless, it is also true that the environment we now live in has been changing,
and it is one of soaring prices and new inflationary pressures. A number of EU Member
States have experienced double-digit inflation, with energy accounting for more than
half of the overall rise in eurozone inflation. The Russian invasion of Ukraine has
compounded supply-side disruptions, which will amplify inflation. The role of Russia
and Ukraine in global commodity supply has furthermore led to high volatility of
commodity prices such as for energy, metals and food.


This has resulted also in short-term risks in commodity related financial markets. By
way of example, margin calls on commodity derivatives have created liquidity strains
for counterparties. Other reactions have also been observed in the market, including
participants reducing their exposures to the energy derivatives market...

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