EU to order financial advisers to think green: document

European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, January 18, 2018. REUTERS/Francois Lenoir

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By Huw Jones

LONDON (Reuters) – European Union rules on financial advice will be amended to promote “green” investments, with asset managers forced to show how they consider sustainable growth in their decisions, an EU document showed.

The bloc’s executive European Commission is due as soon as this week to publish its action plan for financing sustainable growth, such as by favoring investment in projects that help combat climate change.

“Reorienting private capital to more sustainable investments requires a comprehensive rethinking of how our financial system works,” a draft of the action plan, seen by Reuters, says.

There is an annual “investment gap” of 270 billion euros ($333 billion) until 2020, notably in infrastructure, energy and resource management, it said.

The commission will propose a draft law in the second quarter to begin compiling an EU “taxonomy” or checklist of investments and financing activities that are deemed “green”, or promote sustainable economic growth.

The checklist would be used by regulators to ease capital requirements for banks that make loans to “green” projects, or by the bloc to stamp an EU “label” on climate friendly financial products.

The bloc’s securities and insurance rules will be amended in the second quarter of this year so that “suitable” sales advice on financial products must also take into account a customer’s “sustainability preferences”, the document said.

The EU executive will also propose a draft law to clarify that pension funds and asset managers must take sustainability factors into account in their legal duties when serving investors.

“Asset managers and institutional investors will have to disclose how they consider sustainability factors in their strategy and investment decision-making process,” the document says.

An expert group has told the European Commission that cutting capital requirements for banks to encourage more lending to green projects could create a “bubble”.

In response to that, the EU executive tones down earlier suggestions that it would reduce capital requirements, saying instead that reductions will be “explored”.

There is little evidence at present to suggest that “green” or other sustainable assets are generally less risky, and any easing of capital requirements would be for activities on the new checklist, the document said.

The content of a prospectus for companies wishing to issue a “green” bond will be agreed by the third quarter of 2019, it added.

(Additional reporting by Peter Maushagen in Brussels, editing by Adrian Croft)
Copyright 2018 Thomson Reuters. Click for Restrictions.

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