In 2015 the EU helped deliver an ambitious climate change agreement in Paris during COP21 .
In 2015 the EU helped deliver an ambitious climate change agreement in Paris during COP21 and played a key role in developing the global Sustainable Development Goals, both of which commit countries to improving the links between finance and sustainability. The European Commission’s consultation on sustainable and long-term investments closed on 31 March and our response sets out recommendations for the EU to break down regulatory barriers to sustainable investment and create the incentives to invest for the longer term across the financial chain.
Steve Waygood, Chief Responsible Investment Officer at Aviva Investors, said:
“Investing in a long-term and sustainable way is a business, economic and societal imperative. This consultation could be a game changer. We need the EU to unlock private finance and give Europe’s financial sector a new, competitive edge for a sustainable future.
“Short-termism in financial markets and unsustainable business practices pose a strategic risk to European economic growth, not least because current economic and financial activity assumes we have unlimited natural resources. Change is needed to deliver sustainable prosperity to future generations of Europeans.
“The EU now has a window of opportunity to turn sustainability rhetoric into reality by shifting how the markets deliver sustainable growth. I urge the EU to continue its global leadership by making sure its capital markets support Europe’s transition to a sustainable economy, giving citizens more sustainable energy, enabling a more circular economy and securing capital for entrepreneurs that drive innovation and can succeed in the long-run.
In our submission, we advocate the following five initial steps for the EU towards this ultimate goal:
- Adopt a co-ordinated strategy on sustainable capital markets for Europe in partnership with industry and the wider financial community: The EU has already introduced a number of sustainable initiatives, from the more strategic circular economy package to the legislative Non-Financial Reporting Directive. These are welcome, but more co-ordination and centralisation would help channel and accelerate finance to sustainable companies and projects, including low-carbon infrastructure.
- Create comparative benchmarks for Environmental Social and Governance (ESG) performance: It is still difficult for individual investors and civil society to easily compare companies in the way that institutional investors can. This makes it hard for society in general to hold companies to account for their sustainability performance. The EU could help by creating robust and authoritative public benchmarks of corporate ESG performance that are freely available. A first step would be the establishment of a transparent dialogue with investors, companies and civil society representatives, encouraging the creation of such benchmarks. Financing might come from foundations and public-private partnerships.
- Developing greater standardisation across stock exchanges: Stock exchanges and their regulators play a unique role in delivering the standardised ESG data that investors require. The EU could work with its Member States to encourage the International Organization of Securities Commissions (IOSCO) to develop a consistent and comparable approach to corporate disclosure of sustainability performance.
- Providing greater stability through an EU-wide definition of fiduciary duty: The concept of fiduciary duty is embedded in legal frameworks in many countries across the EU, but it can often be misinterpreted by pension trustees, investors and others as a duty to maximize short-term returns and to justify the exclusion of ESG considerations. The Commission could join investors in their call to the OECD to consider a Convention on Fiduciary Duty and Long-Term Investing and consider further action at EU level to clarify fiduciary duty for investors in Europe.
- Embedding sustainability in credit ratings: Credit rating agencies are important players in the financial value chain and have a substantial impact on investors’ decisions. Yet, the modelling time horizons they use for their analysis can be short-term and often fail to factor in ESG issues that could be material over the duration of the bond but our outside of their modelling time horizon. The EU’s rules on credit ratings agencies should consider how these organisations integrate ESG. Requiring them to consider long-term ESG matters over the full duration of a bond on a “comply and explain” basis would be a step in the right direction.
- Ends –
Victoria Howley: +44 (0)20 7809 8791
Notes to editors:
The United Nations Principles for Responsible Investment (UNPRI) – an international network of investors working together to increase responsible investment in practice – currently has 1500 signatories representing over US$60 trillion in AUM, just over half of the institutional assets in the market.
Aviva is a large European investor through Aviva Investors, which has more than E500bn in assets under management. The group has 20 years’ experience investing to encourage sustainable business practices.
Aviva has been around for over 300 years and prides itself on creating a legacy for its customers and stakeholders, and developing for itself a sustainable future for the next 300 years. It is a strong supporter of the UN sustainable development goals.
Aviva Investors was a founding signatory to the UN-backed Principles of Responsible Investment (PRI) and one of the signatories to the UK Stewardship Code.
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