Debate: Investment practices of sustainable investment funds
Date: THURSDAY, 19 JANUARY 2023
Speaker: Paul Tang
Country: Spain
Language: EN

If you buy a television and get a microwave, you would be upset. I would be upset. But you have a whole range of options to take on a fraudulent salesman. But if I invest in green but I get brown, I have no leg to stand on. The research by the major European news outlets shows that Europeans are being sold microwaves as televisions – on a large scale. Some 50% of the greenest funds in Europe actually invest in brown. And the Commission, they are sitting on their hands – not literally, but... The investigation showed very clearly breaches of law. They showed green funds investing in coal companies or in chemical companies operating in China likely with forced labour. This is simply not green, and selling them as such runs counter to the sustainable finance disclosure regulations and these funds should be punished. But the investigation also shows uncertainty. Funds are trying to do good, but facing fake legal standards and unclear social expectations. What about a fossil fuel company that has serious plans to turn around its business or a green bond that only partly finances green investments? Being green is not necessarily black and white, so here the Commission must step in. And the Commission has always stepped in in previous years. I remember when the Commission launched the sustainable finance action plan in 2018 they were entering uncharted territories. The Commission went where no regulator went before. To end short—termism in the financial markets, that is a daunting task. But the Commission took it on and they took it on with verve, creating a disclosure regime for asset managers, building a common taxonomy to define green, creating green benchmarks. And after these corporate disclosures, green bonds, due diligence, it’s on the table. And I commend the Commission for this ambition. But that ambition was then, and I’m worried now, because it seems, despite all the talk about Europeans’ resilience, the Commission itself has surprisingly little of it. If you’re the first at something, it’s normal that things don’t go as planned, that there’ll be unintended consequences, growing pains and people will complain. Yes, they will. But every complaint is an encouragement in this case to do something new, to take the next step. So take any feedback arising from the revelations of greenwashing not as a setback, but as an invitation, an encouragement to move forward. Because by letting national supervisors fill the gap in a sustainable finance framework, barriers are being constructed in Europe. And when it comes to setting standards for deep green Article 9 funds, that means what’s green in France is now green in Germany. What we see is a capital market with green fragmentation, and if Parliament is taking all action, it can already, we are serious about greenwashing and we show it. We want ESMA to develop rules for misleading fund names to ensure green funds are actually green. We want transparency for the entire green bond market so that the Green Bonds Regulation actually does what it set out to do: fight greenwashing. But in Europe, we are a team. The Parliament cannot score without the Commission’s assist. So I want a stronger determination to fight greenwashing from Berlaymont, and in disclosure and regulation, minimum standards for Article 9 funds are essential, as the revelations we are discussing today show. And in the green bond market, it is important to regulate the worst performers to address greenwashing, not just to create a new gold standard for the best in class. And for the Taxonomy Regulation, it must be extended from climate to environment and social, and last but not least, the taxonomy must have a renewed focus on transition. Because it’s one thing to be green; it’s another thing to become clean. And most of the activities in Europe are still not green. Most of the corporates are still not green. So we need to finance a transition to become green and we can use a taxonomy for that. And with all these measures, we can build a common European language for all parts of sustainability and meet the expectations we once set for ourselves to end short—termism and to give the financial sector a renewed licence to operate. In short, Commission and dear colleagues, what we see here, we have different ways to fight greenwash. The tools to address greenwashing are already on the table. We know what we have to do. Or what we could do. The question is only when. And this is the question to the Commission: when will you step up to the plate and the practice of greenwashing that we see now that has been revealed by the major European news outlets?