Sustainable investment was the top item on the agenda of last week’s Brussels meeting of EU finance ministers within the Economic and Financial Affairs Council (Ecofin) — the body responsible for the EU's economic policy.
The finance ministers were meeting to discuss the High-Level Expert Groups's (HLEG) report from February on sustainable finance, which contains strategic recommendations for a European financial system that supports sustainable investments.
"It is important for finance ministers to be involved in the discussion because this matter needs a lot of attention,” Denmark's Minister of Finance, Kristian Jensen (Liberal Party) told AMWatch after the council meeting.
“This is how we will achieve the UN's sustainable development goals before 2030. We have so many plans and ideas but insufficient financing for turning these ideas into reality. That is why we need to ensure that the financial sector is focused on sustainability and that sustainable projects are rewarded," he said.
According to the HLEG on sustainable finance, approximately EUR 180 million in additional investments is needed annually in order to meet the UN's 2030 goals in the Paris Agreement, which include objectives such as a 40 percent reduction of greenhouse gases.
The EU wants to involve the financial sector, as these goals will be difficult to achieve if private capital is not employed to support sustainable investments.
One recommendation from the HLEG is that the EU should develop a classification system to indicate which investments contribute most to mitigating climate change, for instance.
The classification proposal entails establishing a standard for sustainable financial products such as green bonds, where a portion of which could be used for financing green investments.
This way, investors could co-finance environmentally friendly projects by investing in green bonds.
The HLEG also proposes that companies must account for opportunities and risks related to climate change. This should render the market more transparent and make it easier to invest green.
Wants to disseminate Danish experience
The finance ministers addressed several of these questions last Tuesday.
"The discussion centered on how it could be possible to select particularly sustainable investments and how to then implement this selection system. How can a standard system for promoting green investments be made? How can such a system be built?" the Danish minister said.
The ministers did not reach any conclusions at the meeting, but Jensen points out that the discussion must continue, and that a mixture of public and private financing has worked well in advancing sustainable investment in Denmark. This funding has gone to green investments among entities such as the Climate Investment Foundation (Klimainvesteringsfond), the Agricultural Foundation (Landbrugsfonden) and the World Goals Foundation (Verdensmålsfonden).
"I am obviously interested in disseminating Danish experiences to other countries."
The Danish finance minster does not think that green investments should take place merely for the sake of investing green with state finances.
"We are constantly evaluating: What initiatives do we take, and how can we invest in the most environmentally conscious way. It is obvious, however, that when the state acts as an investor, we have multiple interests: both environmental sustainability and economic viability, which is based on the assumption that if something isn't economically viable, then it cannot be environmentally sustainable in the long term. Our evaluations consider how we are able to ensure that what we do brings us closer to achieving the UN's sustainable development goals."
Jensen would therefore like to see a type of European classification system implemented.
"I believe it's important that, if we want positive development, we must be able to signal which projects live up to the UN's goals so investors are knowledgeable about their investments. However, it is clear that a project isn't without risk just because it is green. Standard considerations of risk still apply and must be respected."
Jensen does not want requirements for green profile information to apply to all companies.
"I think guidelines should be made for evaluating whether certain projects are green in relation to investor's goals. That's the way forward. We shouldn't force everyone to do this, because questions of sustainability can be irrelevant to some projects. It could be useful for some projects to say: We want a special tag that highlights this project for having green objectives."
Framework and information
The Danish finance minister wants to set the appropriate framework for companies, and then sustainable investments will naturally follow, he believes. The Danish government will for that reason not take any specific action for promoting the sale of green bonds for example, an area in which Denmark lags behind its neighbor Sweden.
"The state must not directly offer green bonds. What we can do is set the framework for the private market. It's up to the market to figure it out. If demand for a product is large enough, the financial sector will offer it."
Consumers should for the same reason be informed about the advantages of sustainable investments.
"Being able to choose one's own commitments will benefit consumers. If we create green bonds, then investors can choose how to place their capital, regardless of whether it is in unrestricted means or in pensions, and they can thus choose to support a green agenda or not. I hope that many investors choose to manage their ventures in ways that prioritize sustainable goals."
Awaiting an action plan
The finance ministers' Tuesday discussion and the HLEG report have provided ammunition for the EU Commission, which has been asked to present a specific plan of action for sustainable financing in March.
It is still unclear as to when the finance ministers will again discuss the matter.
"I hope it happens soon, so we can make some decisions on the matter," says Jensen.