Christina Papaconstantinou: On the main elements of a robust
regulatory framework and the role of central banks
Speaking points by Ms Christina Papaconstantinou, Deputy Governor of the Bank of
Greece, at the EUROFI Financial Forum 2022, Session "Clarifying the sustainable
investment universe: what is needed (labels, ESG ratings)?", Prague, 7 September
2022.
* * *
Thank you Marcel,
I read this morning in the news that today, the 7th of September, is the International
Day of Clean Air for blue skies and I thought that somehow this is also relevant for our
topic discussion and I wanted to share it with you.
I.
But let me turn to labels; there is no doubt that labels have the potential to influence the
success of the sustainability transition by helping to avoid misallocation of funds and
greenwashing, thus protecting investors.
Currently, there is a lack of a robust and comprehensive regulatory framework with
common definitions, common labels and standards for sustainable financial products.
At the EU level, labels form a diverse and fragmented landscape, and this creates
impediments in mobilising the necessary resources towards sustainable activities.
We should of course acknowledge the ongoing efforts to address these shortcomings,
especially in Europe.
These include several milestones already achieved, such as the implementation of the
Sustainable Finance Disclosure Regulation, the ongoing development of the EU
Taxonomy of sustainable activities and the EU regulation on green bonds. These
actions are key to channelling funds towards sustainable investments.
Nevertheless, we need to do more, as the market needs transparent, comparable and
credible labels for financial products and the regulatory framework needs to evolve
accordingly.
This framework should be based on criteria that are science-driven, clearly defined and
sufficiently detailed. It is also important that there is verification and supervision of ESG
financial products in order to increase trust and scale up sustainable investments.
Furthermore, the prudential rules need to allow for sufficient flexibility so as to
accommodate financial innovation in the future.
II.
Regarding banks, the SSM already expects from significant banks in the EU to publish
meaningful information and key metrics on sustainability issues.
Moreover, from this year onwards, and in accordance with the relevant European
Commission regulation on Taxonomy disclosures and the EBA standards on banks'
public disclosures, European banks have to provide ESG disclosures and, as from
2024, they will have to provide their green asset ratio as an indicator of their EU
Taxonomy-aligned exposures.
Hence, to do so, banks have to engage into important preparatory work.
Once implemented, these disclosures are expected to increase market transparency,
data availability and also enable to assess banks' ESG-related risks and strategies.
III.
As for central banks, and although the primary responsibility for meeting the transition
targets remains with the governments, we can also undertake an active role in
sustainable growth within the remit of our mandate. At the Bank of Greece, we started
looking into sustainability issues back in 2009 and we are among the first central banks
to do that by analysing the economic, social and environmental impacts of climate
change. I believe that the relevance of the sustainability agenda is a view that is shared
by the ECB and by many other central banks.
In this respect, the Governing Council of the ECB has included, climate-related and
sustainability matters into its latest strategy review and decided on implementing a
comprehensive action plan to address sustainability issues and to further incorporate
climate change considerations into its policy framework.
Additional steps were announced in July 2022, which reaffirm this commitment and
touch upon different areas of ECB activities, some of which are relevant to ESG labels.
For instance, the classification of listed financial instruments in the centralised securities
database across ESG categories, such as green or social and development of
experimental statistical indicators for analytical purposes, covering green financial
instruments, the carbon footprint of financial institutions and their exposure to
climaterelated physical risks.
The above actions are not performed in isolation; the ECB collaborates closely with
regulators and policymaking bodies, including the European Commission, in line with
progress on EU policies and initiatives regarding sustainability disclosures and reporting.
IV.
As a final comment, I would like to add that we are nowadays experiencing
unprecedented parallel challenges at a global scale: our economies are still recovering
from the pandemic, there are severe geopolitical tensions worldwide, and the
climateenergy nexus needs to be addressed urgently.
ESG has of course been seen as an opportunity for actors of the financial system; yet,
what is at the heart of the matter is the appropriate answer on how we can put in place
a regulatory framework that will facilitate the financial system's commitment to a
positive overall impact on society and on the planet.
We are at a juncture where more needs to be done - ESG is only a fraction of what is
necessary to promote the sustainability agenda in a holistic manner so that the financial
system serves the economy, fulfils its purpose, while at the same time supporting
sustainable growth. Moreover, we should not delay our efforts, as the need for transition
is urgent and the markets for ESG financial products are rapidly growing.