Current state of play in sustainable finance and responsible investing in Europe

Update on The European Green Deal investment plan and ‘enabling framework’- to facilitate and stimulate  public and private investments needed for the transition to a climate-neutral, green, and inclusive economy

The EU is facing a make-or-break moment in terms of whether it is willing to pay the costs – both financial and political – of moving forward with decarbonisation at the speed and according to the model it has set out in the European Green Deal. Climate neutrality in Europe cannot be achieved without sustained publicprivate collaboration and joint action. Enhanced public– private cooperation to ensure a climate-neutral and competitive future for the European economy. Despite some companies making good progress in reducing Scope 3, both SMEs and large companies are facing obstacles in decarbonising their value chains. Delivering on the EGD requires steadfast implementation and momentum across stakeholders. Is the challenge for European leaders in 2024 to build the case for doubling down on the next difficult stage of implementation?

• Enhanced public– private cooperation to ensure a climate-neutral and competitive future for the European economy. As Scope 3 emissions are far more complex to reduce than Scope 1 and 2 does this pose a risk to the feasibility of reaching the EGD’s net-zero target?
• Are European asset owners continuing to lead global net zero efforts by adopting and active ownership approach?
• Examining clean energy solutions across Europe- is collaboration across jurisdictions required to reduce the reliance upon fossil fuels?
• How to identify and model risks and to encourage private and institutional investors to invest in more purposeful projects using enhanced de-risking mechanisms offered by increased EU-backed guarantees
• The European decarbonisation roadmap and likely problems with a 2050 target
• TCFD & SFDR- An update on European sustainable finance regulation as Europe expands dominance in ESG
• How are investors contending with the recent French ESG labelling laws for sustainable investments?

The finance industry is being urged to accelerate the transition to low-carbon, resilient, and inclusive economies, though political division has posed many challenges to banks, insurers and investors trying to put sustainability at the core of their business practices. Despite multiple challenges, UNEP FI’s members continued to respond ambitiously by contributing, as the UN’s largest network of financial institutions, to advancing sustainable finance.

• What has worked and hasn’t when delivering science based emissions targets?
• Benefits of a whole economy approach- connecting top down and bottom up
• The need for national transition plans.
• Meeting net zero commitments through collective engagement and collaboration- ensuring the necessary economic and societal adjustments are made for a just transition.

Financing the transition from planning to practice: Current state of play with transition planning and transition finance in Europe

• How the GFANZ four financing strategies can provide a starting point for banks to report their transition finance efforts.
• Banks though a key enabler in the net‐zero transition should not be the sole active player – examining how the success of these efforts is dependent on supportive government policies and proactive decarbonisation by real economy companies
• Challenges posed for both investors and banks when transitioning to net zero
• Scaling transition finance- examining how capital deployment strategies will require a collaborative effort among all stakeholders, alongside dedicated fiscal and regulatory tools and risk-sharing financial mechanisms such as blended finance
• Will financial institutions need to build the internal capabilities that will help them engage effectively?
• What metrics are required to encourage transition finance?
• Missing (sectoral) data, scientific pathways and best practice for corporate transition plans
• Defining net-zero targets and timelines to support the client transition, finance the green technologies of the future, and fund the early retirement of high-emitting assets
• How transition planning and transition finance in Europe fits within the CSDR frameworks and CSDDD

The sustainable financial community and the financial industry in general must play a more active role as a steward of global capital, it is uniquely positioned to help build an economy that works with, rather than against, nature. It can facilitate a nature-positive transition, by transforming the way it allocates capital and developing new models to allow institutional investors to price biodiversity risks and opportunities more accurately across portfolios.

• ESG and biodiversity- developing new models to price biodiversity risks and opportunities more accurately
• Quantifying biodiversity exposure risks and embedding natured based investment opportunities into broader environmental strategy
• How can the EU take the lead in promoting biodiversity?
• Developing and scaling up revenue flows from ecosystem services and using blended finance
• Harnessing available data to better identify and properly manage nature-related impacts, dependencies, risks and opportunities
• Assessing the material risks facing financial institutions and the compounding climate risks
• Assessing frameworks for action and initiatives to foster collaboration – can investors leverage their knowledge of TCFD for biodiversity when applying the TNFD framework?

Dealing with the non-linear and cascading nature of physical climate risks

Physical climate risk management should be embedded into how investment firms manage risks relating to real assets. From overall investment strategy and risk appetite down into the quantitative risk assessment, investment decisions and disclosures. How can investors better manage this emerging and important source of risk? The uptake of expanding scientific understanding of physical climate risks into investment decisions and financial risk management remains limited and for many institutional investors, physical risks remain unfamiliar territory. Sound financial decision-making requires investors to mitigate against physical climate risk across portfolios. The sustainable finance community needs to facilitate and enable greater collaboration between finance, data and climate science to mitigate against the threats of physical climate risk.

• Climate change adaptation and resilience- risk impacts and financial inclusion- managing impact at a macroeconomic level
• Uncertainty of macro estimates of future climate change impacts- building economic resilience to manage physical climate risks
• Scaling the integration of climate adaptation across the financial sector- building resilience for the most vulnerable communities
• Mitigating against nature related risks
• What strategies are available for institutional investors to adequately assess and report on the physical risks and opportunities arising from climate change?
• Overcoming problems with data granularity – does using inadequate location data granularity, prevents capturing an accurate view of physical climate risk at asset level?