24/10/2024
From the outset the European Financial Services Round Table (EFR) and its Members have been strong supporters of the ambitious Paris Agreement from COP21. The EFR particularly welcomes recognition of the contribution the financial sector can make and recognising the role that insurance and the financial industry in general play in tackling the loss and damage associated with climate change impacts.
In view of the upcoming COP29, the EFR has shared it views with global policymakers, who are key to tackling climate change, on how policy should be developed so that the financial sector can play its envisaged role.
Over the last decade, sustainable finance has become a core focus for regulators and now affects every activity of a company. However, policy development has taken place at varying speeds in different jurisdictions, leading to a patchwork of requirements that have preceded the development of global standards (many of which are still under development or are to be developed).
The EFR believes that regulatory fragmentation should be avoided and that requirements which meet a baseline standard, whilst unlikely to be fully aligned, should be interoperable to avoid placing excessive and duplicative compliance burdens on firms. This is also in line with the conclusions of the future of European competitiveness report by Mario Draghi calling for simplifying rules. Excessive regulatory and administrative burden can hinder the competitiveness of EU companies compared to other blocs. The EU’s sustainability reporting and due diligence framework is a source of regulatory burden, magnified by a lack of guidance to facilitate the application of complex rules and to clarify the interaction between various pieces of legislation.
In its letter the EFR focusses on four main topics that should be taken into account so that the financial sector can play its envisaged role.
- Regulation should support investment in the transition
- Global standards are still emerging, but global convergence is key
- Investment in transition activity is as important as “bright green”
- The prudential framework for climate-related factors should remain risk-based