The European Commission has upped the stakes on incorporating sustainability into the way we invest. It is all part of a recent recommendation on how the financial system in Europe should operate.
The recent final recommendation on how to create a sustainable financial system from the European Commission’s High-Level Expert Group on Sustainable Finance may have escaped many. But it’s a big deal and here’s why:
Up until now such financial policy has not taken explicit account of sustainability, but the roadmap from the European Commission is designed to build this into the very architecture of the system. In other words, from an asset-management perspective, it will make it very difficult for those who still think sustainability falls outside of a fiduciary’s responsibilities to maintain this position.
The report’s proposals address lingering challenges such as the confusion around what is and what isn’t sustainable; investors’ duties when it comes to creating a more sustainable financial system; and, in the critical area of disclosure, encouraging financial institutions and companies to improve reporting on how sustainability features in their decision-making.
Importantly, the conclusions will feed directly into the Commission’s pending ‘Action Plan’ on sustainable finance and thus have an immediate impact on its strategy. What does it mean for us? Firstly, we view it as a validation of long-term stewardship, which is a central part of our philosophy. Secondly, we believe it is an opportunity, as capital over time is re-oriented towards companies that are proactive about sustainability. Thirdly, it should provide additional heft to our company engagement, making it harder for managements to skirt this critical issue.