European Union embraces low-carbon, circular economy: How will it get there?
March 28, 2018
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The EU is focusing on sustainable growth and is partnering with the private and financial sectors to make it happen
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Key questions being asked in the European Union climate and green growth agenda is why and how the EU should develop a strategy on sustainable finance. The “why” is obvious. The European Union and its member states are a signatory of the Paris Agreement and the UN 2030 agenda for sustainable development. Both documents are contributing to a shift in global attitudes toward climate change and environment degradation.
The “how” of the climate and green growth agenda is where things begin to get complicated.
The EU has embraced the need to quickly transition to a low-carbon, resource-efficient, circular economy. The commitment of the EU’s 2030 climate and energy targets, as agreed in Paris, includes a 40 percent reduction in greenhouse gas emissions and approximately €180 billion in additional investments each year through 2030. The EU is already dedicating most of its internal policies and resources toward achieving this target. They are still falling short.
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Quite simply, there are not enough public funds available to meet the investment target. That is why the private and financial sectors have a key role to play in reaching these goals. This creates an urgent need for a regulatory framework to support this reorientation of private capital toward sustainable investment, while ensuring financial sustainability.
Following the publication of the Action Plan on financing sustainable growth on March 8, 2018, the European Union organized a high-level meeting to address financing sustainable growth. The March 22 event brought together representatives of the European Parliament and European Commission including the President of France Emmanuel Macron, Special UN Advisor Michael Bloomberg, and President of the EC Jean-Claude Juncker, and a selected number of representatives of the private sector. It was an honor for me to represent Stantec at the event.
Discussions during this meeting concentrated around the three main objectives of the plan:
- Reorienting capital flows toward sustainable investment to achieve sustainable and inclusive growth.
- Managing financial risks stemming from climate change, natural disasters, environmental degradation, and social issues.
- Fostering transparency and long-termism in financial and economic activity.
The European Commission’s decision to invite the private sector to take part in this process presents an exciting opportunity to increase collaboration. Though the modalities to achieve the goals may not always coincide, many in the private sector are willing to actively be involved. The strategic agenda in the coming months will be key to its success and will involve discussions on the following elements:
- Establishment of a common language for sustainable finance, dubbed by the EU as “EU sustainable taxonomy,” that will provide a classification system of environmentally and socially sustainable climate activities. It will define what is sustainable and where investments could have the highest impacts, so that capital flows toward activities that contribute to sustainable development.
- Creation of standards and labels for green financial products. An EU ecolabel for green financial products (“green bond”) will help to guide investors and flag the green products.
- Work with institutional investors and asset managers to make sure they consider environment, social, and governance issues in their investment process, and are more transparent with their clients. This component has the support of the sector, though they would prefer a code of conduct rather than a hard regulation.
- Strengthen sustainability disclosure and improve accounting rule-making. Issues of green bonds, for example, will need to provide even more pertinent information to market participants.
The European Union has published a detailed timetable for actions and will be rolled out through Q2 2019. Consultations with the private sectors will take place on the four above mentioned points. This EU strategy will massively impact the overall financing of sustainable growth in the European Union and all those involved in this sector. President Macron made a statement that 40 percent of the EU internal budget should be directed to support this growth. The private, financing, and public sectors need to collaborate and work together and look long term to achieve sustainable growth.
As Stantec, we have a role to play in our countries of operation in Europe and in supporting our clients, the European Commission, and the European Investment Bank, in achieving their ambitions. Momentum is building behind the Paris Agreement, and attendees of the meeting acknowledged that this is the only way forward for sustainable growth in Europe and with our partner countries.
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