BRUSSELS (Reuters) - The European Commission proposed on Thursday new rules to force asset managers, insurers and pension funds to disclose how they take into account environmental risks in their investments and abide by clearer criteria when they claim “green” credentials.
The plan is meant to spur green investment and to curb “greenwashing”, a practice whereby companies and other organizations claim to be more environmentally friendly than they really are.
“We want to establish an EU-wide classification system for sustainable activities, to provide common definitions for what is green and what is not. This is a ground-breaking step,” the EU commission’s vice-president Valdis Dombrovskis said.
He said it would be the first time the EU had developed a classification system for environmentally-friendly investments.
The EU commission dropped an initial plan to lower capital charges for banks and investors who decide to invest in green projects after warnings from credit rating agencies that such a move could weaken banks’ financial stability.
Dombrovskis said the commission was nevertheless supporting a similar plan put forward by EU lawmakers and would help them to properly calibrate the preferential capital treatment for green holdings and put in place some safeguards.
“Green does not necessarily mean risk-free,” he told reporters.
The classification system for green investments will be developed in several months and after technical advise from experts, to give financial firms time to adapt.
Asset managers opposed the move when the commission first flagged it in March but their objections were not heeded. [nL5N1QQ5HQ]
“By making sustainability risks a part of their decision-making process, asset managers and institutional investors can more fully assess long-term risks and opportunities, and not only short-term financial returns,” Dombrovskis said.
The plan is meant to help the EU to achieve its targets in countering global warming, for which the commission estimates that 180 billion euros ($210 billion) a year in additional investment will be needed for the next two decades.
In a further move to reach its objectives, the commission also proposed the setting up of two new “green” stock indexes.
A planned new low-carbon benchmark could include only stocks of firms with a proven record of low carbon emissions, while a second “positive-carbon impact benchmark” would be limited to companies that actively contribute to reducing global warming.
On Thursday the commission also put forward proposals to increase consumers’ protection in the field of motor insurance, to make sure that victims of road incidents are compensated even if their insurers are insolvent.
The EU executive proposed new rules to facilitate the listing of small companies to help them secure funding from sources other than banks. Only 3,000 of Europe’s 20 million small and medium enterprises currently have stock exchange listings, it noted.
The Association for Financial Markets in Europe (AFME), a trade body for large financial firms, welcomed that proposal, which it said would help small companies to expand.
Reporting by Francesco Guarascio; Editing by Philip Blenkinsop and Catherine Evans