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It's now or never for green finance, watchdog warns EU
Climate change

It's now or never for green finance, watchdog warns EU

by John MONAGHAN 3 min. 20.09.2021
EU's promotion of sustainable investment lacks consistency, European Court of Auditors finds
European Commission President Ursula von der Leyen (left) and EU commissioner for Economy Paolo Gentiloni
European Commission President Ursula von der Leyen (left) and EU commissioner for Economy Paolo Gentiloni
Photo credit: AFP

The EU's efforts to bolster sustainable finance are falling short, the bloc's budget watchdog said on Monday, citing inconsistent rules and a lack of binding requirements forcing companies to help protect the environment.

“Unsustainable business is still too profitable,” Eva Lindström, a member of the European Court of Auditors, said following a report by the Luxembourg-based regulator, which questioned the EU's current roadmap towards finance that supports the fight against climate change as well as other environmental goals.

The European Commission urgently needs to introduce “consistent criteria to determine the sustainability of the investments it supports from its budget,” said the report, which assessed Europe's 2018 Sustainable Finance Action Plan, established three years after countries signed up to the Paris Agreement.

It is the latest ECA report this year alone to be critical of the EU’s environmental actions, following similar findings regarding the role of the bloc’s budget in supporting climate-unfriendly agriculture, its efforts in tackling discarded electronic waste, and a lack of e-car charging points across the continent.

Emphasising the outsized risks of climate change on the economy, the ECA cited the European Central Bank which reported this year that “the impact of climate risks on companies and banks could even trigger a recession or a financial market crash”. 

The EU has set itself a target of becoming a climate-neutral economy by 2050, although the Commission “has not yet estimated” the total investment required for meeting that target, the ECA said. Experts had estimated the cost at around €1 trillion each year from now until 2050, the ECA said.

Carrot, no stick

The EU’s 2018 plan outlined measures to encourage private finance to invest in sustainable projects and manage financial risks linked to climate change. Alongside this, the European Investment Bank (EIB) and the Commission continue to offer funding for sustainable investments.

But the current legislation, the ECA noted, lacks any “binding requirement” on EU-funded activities to apply the “do no significant harm” principle when it comes to environmental impact.

The ECA report identified a host of missed opportunities in EU funding of sustainable finance projects, provided by bodies such as the European Investment Bank
The ECA report identified a host of missed opportunities in EU funding of sustainable finance projects, provided by bodies such as the European Investment Bank
Anouk Antony

The result is often a confusing patchwork of environmental benchmarks, with the same activities - funded by different EU programmes - being assessed by “insufficiently strict or differing criteria”, according to the auditors.

The ECA also blasted the EU for a series of missed opportunities, citing examples such as the European Fund for Strategic Investments providing “less support for climate action in central and eastern Europe, where there is considerable need, than in other regions”.

“In addition, we found little financial support [for] climate adaptation projects, which find it difficult to attract private finance,” the auditors added.

“We also consider that the EU has not been sufficiently proactive in supporting the development of a pipeline of sustainable projects and has not fully exploited the potential of National Energy and Climate Plans to identify sustainable investment opportunities,” the report said, referring to national plans that member countries are required to draw up as part of the EU-wide policy.

In its response to the report, the Commission said that most of the measures contained in the 2018 action plan have already been completed, adding that legislation proposed this year - which would compel companies to disclose their environmental impact - would further strengthen sustainable finance.

The ECA has urged Brussels to incorporate its findings when implementing its latest strategy, published in July, for financing a sustainable economy.


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