According to a discussion document released by the European Union recently, the EU may need to do more to encourage private capital to make sustainable investments or risk falling short of its net-zero economy goals.

The informal discussion document from the EU’s executive European Commission stated that the majority of funding for the low-carbon transition will need to come from private sources.

“While there are some promising tangible results on the ground in terms of finance flowing towards activities which help decarbonise our economy, it looks uncertain whether current trends will be enough to meet our long-term goals,” concluded the report.

It could be required to devise novel approaches to encourage investment in the areas where the greatest impact can be achieved.

“Greater efforts may be needed to better help direct and amplify the impact of private funds,” it added, without elaborating as it seeks member state views.

There were no comments on the issue from the European Commission.

The bloc has already imposed regulations on green bonds, which are used to finance socially conscious investments, and on a taxonomy or standards for sustainable investments. Additionally, corporations are required to provide investors with environment, social, and governance (ESG) disclosures.

In the discussion document for EU states on its workplan for a new five-year term starting later this year, the Commission stated that these regulations will continue to be improved for broader applicability across the economy.

The United Kingdom has initiated measures to incentivize insurers and pension funds to make sustainable investment commitments.

Concerns regarding “structural challenges” that the financial services sector faces are also raised in the EU study.

Despite years of reforms to create a capital markets union, few market players operate beyond their national market.

The national character of market infrastructures, national differences in supervision and enforcement, taxation and insolvency laws, seems to “discourage firms from exploiting the potential of the EU single market,” the document said.

It asks EU states for views on tackling barriers to consolidation in some areas of financial services.

The EU this month approved a law to end heavy reliance on euro derivatives clearing in a post-Brexit London.

Few market participants operate outside of their home country, despite years of reforms aimed at creating a union of capital markets.

It appears that national variations in taxation, insolvency rules, market infrastructures, and oversight and enforcement “discourage firms from exploiting the potential of the EU single market,” according to the study.

It solicits opinions from EU members regarding how to remove obstacles to financial services consolidation in specific areas.

This month, the EU passed a law that will reduce London’s reliance on euro derivatives clearing in the wake of Brexit.

Brussels wants to find other financial areas where it may stop its “excessive reliance” on third-party providers that could “diminish the EU’s geopolitical weight,” given that Brexit has made the EU’s competitors more formidable.

(Adapted from Reuters.com)

Categories: Economy & Finance, Regulations & Legal, Strategy, Sustainability