On February 11th, CDSB and WBA co-hosted a stakeholder roundtable on addressing systematic risk and encouraging sustainability transparency in the financial system. As a result of the discussions with representatives from the investor, regulatory, supervisory, reporting standards and civil society sector, CDSB and WBA developed a set of recommendations to increase the policy coherence between the different legislations and requirements within the EU sustainable finance agenda.

The stakeholder roundtable set out to explore how sustainable finance risks are considered, documented and reported on within existing standards and frameworks, and what gap there remains when it comes to incentivising sustainability action of financial institutions. The event addressed if the current policy toolbox for the EU financial sector is sufficient to identify and address the current unsustainable trajectory and the risk it poses to financial institutions and the economy, as well as to meet increasing stakeholder expectations on disclosure of the impacts of the private sector.

The EU has shown strong leadership on sustainable finance policies and published a first sustainable finance strategy in 2018 with a set of ambitious policy initiatives and tools. The renewed Sustainable Finance Strategy, the revision of the Non-Financial Reporting Directive, and the implementation and broadening of the EU Taxonomy will be important initiatives to facilitate the necessary transformation needed in the financial sector.

The recommendations are the following:

• EU sustainable finance policies should be science driven, reflect on best market practices and look at real world impacts to bridge the (data) gap between investment practices and global climate and environmental goals.
• The future sustainable corporate governance initiative of the European Commission will need to strike a balance between hard law and flexible approaches (such as comply or explain) to incentivise more sustainable and responsible business conduct, by choosing the most effective policy tools (directive, regulation, guidelines…) and the relevant policy areas to address.
• Regulatory developments on corporate sustainability and responsible investing requirements need to be supplemented by independent tools such as benchmarks to help accelerate progress on impact and drive standardisation.
• Ensure mandatory disclosure of how a company’s sustainability strategy is integrated into accountability at a senior board level through specific targets and Key Performance Indicators (KPIs).
• Reporting standards should clearly define the relationship between non-financial reporting and financial performance to embed societal and stakeholder expectations in their business practices.
• The European Commission should address the sustainable finance powers of the European Supervisory Authorities as part of the initiative foreseen in the Action 16 of the 2020 Capital Markets Union Action Plan to foster further supervisory convergence.