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On 8 April 2020 the European Commission published a consultation paper on its renewed sustainable finance strategy (the “Sustainability Strategy”). The Sustainability Strategy is a policy framework forming a key part of the European Green Deal, the EU’s roadmap to making the EU’s economy sustainable, including reducing net greenhouse gas emission to zero by 2050. Despite the inevitable recent shift of focus to measures dealing with the COVID-19 crisis, this remains a top EU priority and the outcome of this consultation may significantly affect the corporate law applicable to European businesses, investors and directors in the near term.
This wide-ranging consultation seeks the views of interested stakeholders on the measures necessary to increase private investment in sustainable projects. It asks for both general and specific feedback on how best to ensure this flow of capital, including through reporting, transparency and corporate governance requirements. The feedback received will be factored into the Sustainability Strategy, currently expected to be adopted in the second half of 2020. The consultation is open through 15 July 2020.
The EU expects to be the world leader in the fight against climate change. On 28 November 2019, the European Parliament declared a climate emergency, and on 4 March 2020 the European Commission proposed a European Climate Law, aimed at turning the political commitment of climate-neutrality by 2050 into a legal obligation.
The Sustainability Strategy consultation paper acknowledges that the investment necessary to reach the current climate and energy targets is “massive”, beyond the capacity of the public sector, and moreover that if the climate and biodiversity crises are to be successfully addressed and reversed before potentially dangerous tipping points are reached, much of the investment needs to happen in the next 5-10 years.
Despite a raft of initiatives already underway at a national and supra-national level (including the EU’s original 2018 Action Plan on Financing Sustainable Growth, which laid down the foundations for channelling private capital towards sustainable investments) and the vastly increased investor appetite for sustainable investments in recent years, this consultation recognises that the financial system as a whole is not changing fast enough to support sustainable business and businesses transitioning to sustainability. The revised Sustainability Strategy is expected to be more comprehensive and ambitious, aimed at changing the way businesses analyse and report on their operations and finances, pay directors, make decisions and raise funds, and the way investors assess and engage with businesses, to move sustainability to the centre of all of those processes.
The consultation asks for views on a wide array of questions categorised into three areas (i) strengthening foundations for sustainable investment; (ii) increasing opportunities for citizens, financial institutions and corporates to enhance sustainability; and (iii) reducing and managing climate and environmental risks.
The 102 questions of the consultation give interested parties the opportunity to give their views on some of the most hotly debated questions in corporate finance right now. Among many other interesting topics, this consultation seeks views on several important areas of corporate governance:
Despite the current challenges posed by the COVID-19 pandemic, the European Commission continues to focus on sustainability and its ambition to become the first carbon neutral bloc in the world by 2050 (which is at the heart of the European Green Deal). The implementation of the various EU initiatives highlighted above, including the Sustainability Strategy, will lead to a number of legislative and regulatory changes during the remainder of 2020, 2021 and beyond, and will no doubt affect how financial institutions, corporates, directors and stakeholders interact with one another and conduct themselves. We will continue to monitor any developments in this space so that we can respond quickly to any questions our clients may have (or issues they may face) as the impact of certain legislative and/or regulatory changes becomes clear.