PROJECT DESCRIPTION
BACKGROUND
An orderly transition to a low carbon and climate resilient economy requires a rapid shift in capital allocation in the EU. The integration of climate mitigation and adaptation considerations in the financial system is critical to achieve this objective, as reflected in the EC Sustainable Finance Action Plan adopted in March 2018, and the related regulatory package.
France has been a pioneer in this field, notably by initiating a collaboration between the Environmental Ministry and the Treasury in 2012, by introducing the Energy Transition Law in 2015, and the Energy Transition Label for funds. The Energy Transition law, in its Article 173, requires investors to disclose the alignment of their portfolios with climate goals and to set climate targets, and specific companies to strengthen their climate information reporting about significant indirect emissions and climate risks management.
However, sustainable finance is still an emerging topic, in which agreed metrics, standards and labels are nearly absent, and with significant knowledge gaps (experts in finance have limited knowledge on environmental issues and experts in environment often have limited abilities in finance).
In this context, the mobilisation of investors on climate remains difficult. This situation creates a risk for the dynamic of sustainable finance in Europe that can be addressed by the French authorities and key stakeholders, as leaders in this field. This need will become even more intense post-Brexit, with increased competition between London, Paris, Frankfurt and other EU financial centres to become the greenest and host the emerging activities related to sustainable finance.
OBJECTIVES
The main objectives of the Finance ClimAct project were threefold.
- Full compliance: Upgrading the capacity of supervisors and regulated entities to fully implement existing and forthcoming mandatory requirements related to sustainable finance (e.g. climate related- risk analysis, disclosure, product information and integration into financial advice). Sustainable finance quickly needs to become a normal regulatory topic, an area where the rule of law applies, with no excuse related to the lack of capacity, uncertainty on metrics, etc.
- Level-up the playing field: Increasing the standards regarding the relevance of climate risk metrics and assessment frameworks, the comparability of information disclosed, the evidence provided to back green marketing claims, in order to reach a level that makes those practices solid enough to actually inform investment decisions.
- Go mainstream: Combining regulatory reforms, innovative tools and mass communication to get green products out of their niche and into the mass market.
In addition to the LIFE funding, the project aimed to facilitate the coordinated use of €19 516 000 of complementary funding from French Ministry of the Environment and ADEME, AFD, NKI, IKI Germany, Swiss government (FOEN), Finance for Tomorrow, Climate Works Foundation, Rockfeller Brother Fund, BPI France, Hewlett Foundattion and CDP funds.
The project was built to address most of the barriers and knowledge gaps identified in the French Low Carbon Strategy (FLCS) (Economy Chapter) and the 2018 EU Action Plan for Sustainable Finance – amended by the 2021 Strategy for financing the transition to a sustainable economy.
RESULTS
The project clearly contributed to both the EU Action Plan for sustainable finance and the French Low Carbon Strategy (FLCS). It was very active in contributing to several consultations and policy work as well as disseminating and promoting the project’s actions and results through many meetings and events, including high-profile and critical ones, and several publications and reports published and disseminated to the relevant stakeholders.
The project developed and widely disseminated many relevant tools, methodologies and studies to help financial institutions, supervisors and industries change or improve their practices and to overall develop sustainable finance. Moreover, complementary actions supported multiple themes of the FLCS and EU Action Plan.
The project also showed a good capacity to involve or interact with relevant stakeholders (financial industry, research, international institutions), including through capacity building and training activities. The involvement of these actors was key to the project’s work and results.
The project’s implementation came at a topical time from a policy point of view – considering all the policy evolutions throughout its implementation – and was embedded in the relevant networks and partnerships to have an effective impact at national, EU and to some extent international levels. This was also demonstrated by the complementary actions run in parallel for a total cost of about €16 million.
After 5 years of implementation, key work and results include:
- capacity-building of financial institutions and supervisors regarding sustainable finance and climate topics, including to conduct climate stress test programmes,
- a methodology to develop Sectoral Transition Plans at different sectoral and geographical levels, being disseminated at national and European levels; development of such Plans for the 9 most energy-consuming sectors in France,
- development of tools for building and assessing real-economy companies and financial institutions’ transition plans through to the ACT initiative, which was developed to help companies prepare themselves to the adaptation to climate change and assess the quality and comprehensiveness of company’s adaptation strategy, from their physical risk analysis to their governance,
- development and improvement of the PACTA (Paris Agreement Capital Transition Assessment) tools to assess the alignment of financial portfolios and companies with climate goals,
- the creation of a Climate Transparency Hub, now set as the reference mandatory platform for sustainability reports from all French financial institutions,
- a Sustainable Finance Observatory, which analyses voluntary and regulatory data to track the financial contribution to the Paris Agreement,
- meaningful studies on sustainable retail investments in France, focusing on retail investor preferences, how they are assessed by financial advisers and how impactful the financial products offered actually are,
- a digital platform, MyFairMoney, to inform retail investors in France and Europe.
