What European Commissioners say about sustainable finance

Over five days, the European Parliament organized 27 hearings to examine the positions of the 27 designated European Commissioners. Michael McGrath, Maria Luís Albuquerque, Wopke Hoekstra and Teresa Ribera Rodriguez were notably asked to comment on topics such as the implementation of the Corporate Sustainability Due Diligence Directive (CSDDD), the fight against greenwashing, and the role of private financing in the ecological transition. Reclaim Finance reviews the responses and silences of the candidates, which offer valuable insight into the direction the European Commission could take regarding sustainable finance.

Every five years, before each new College of European Commissioners takes office, the European Parliament is required to hold hearings for the designated Commissioners and vote on their nomination. These hearings allow Members of the European Parliament to assess the candidates’ competencies and visions for their future portfolios. This step is often a formality but is facing unprecedented political pressure this time, particularly on climate-related issues.

Reclaim Finance sought to understand the vision of the relevant commissioners on climate and means to finance the transition. While Teresa Ribera Rodríguez and Wopke Hoekstra did not have the opportunity to express themselves extensively on topics related to private financing of the transition or remained vague, Maria Luís Albuquerque and Michael McGrath provided important clarifications.

Teresa Ribera Rodríguez

Executive Vice-President for Clean, Just and Competitive Transition

Wopke Hoekstra

Commissioner for Climate, Net Zero and Clean Growth

Maria Luís Albuquerque

Commissioner for Financial Services and the Savings and Investments Union

Michael McGrath

Commissioner for Democracy, Justice, and the Rule of Law

The Corporate Sustainability Due Diligence Directive (CSDDD)

The CSDDD was mentioned several times during the hearings but was not a major topic. The designated commissioners positioned themselves in favor of its implementation, with Michael McGrath stating: “We must proceed, the directive is there, and it must be transposed and implemented”. However, while they recognize the importance of the directive, particularly due to the global impact it can have, they remained vague or simply did not answer questions from MEPs Lara Wolters (addressed to Commissioner McGrath) and Marie Toussaint (addressed to Commissioner Albuquerque).

The questions from these two MEPs focused on the potential inclusion of financial services in the CSDDD, an issue that remains to be resolved for the next Commission following the adoption of the text (1). Currently, financial institutions can, for example, continue to invest heavily in fossil fuel projects or those linked to deforestation without being held accountable. This lack of response from the designated Commissioners is thus problematic as it leaves uncertainty about the Commission’s commitment to extending the scope of the directive to the financial sector and therefore its willingness to fully engage the financial sector in the ecological transition.

Redirection of private finance

Despite its crucial role in the ecological transition – and in climate degradation – private finance only occupied a marginal place during the hearings of European commissioners. The reorientation of private finance towards sustainable investments was indeed addressed, but the positions expressed remained relatively general. Maria Luís Albuquerque thus emphasized the crucial importance of private financing in the ecological transition, explaining that we must continue “Europe’s efforts to direct more private capital towards projects that have a positive environmental and social impact, as a contribution to a more sustainable future” (2). She added, however, that the rules already exist and that they should now be implemented (3).

This position does not take into account the fact that the texts already in place on sustainable finance do not allow for the redirection of financial flows. They are focused on transparency, and assume that this will be sufficient to radically transform the behavior of institutions and the allocation of investments. However, the significant progress made in transparency in recent years has not triggered a transformation of practices and a sufficient increase in support for sustainable activities. Specifically, while support for the development of coal, oil and gas production is recognized as incompatible with limiting global warming to 1.5°C, it continues to be massively supported by European banks, investors and insurers (4; 5).

Capital Markets Union

The commissioners emphasized the central role of capital markets in financing climate action. Commissioner Albuquerque notably stated that “without a deepening of the capital markets, we have no fair chance of getting there: not to finance the transition, not to keep funding for green activities, not to support the companies becoming green” (6). However, she added some nuance to her statement by specifying that “capital markets will not solve everything” (7).

Although deepening the capital market could indeed increase the volumes of financing available for the transition, it should be remembered that this would not “green” finance. Indeed, without appropriate redirection mechanisms, such an expansion should also increase financial flows towards activities harmful to the climate, the environment, and biodiversity. The real challenge therefore lies not only in increasing capital volumes, but especially in directing a higher proportion of these flows towards sustainable activities and away from polluting activities. Unfortunately, the current projects and speeches of the commissioners do not include concrete measures to guarantee this reorientation. This gap underlines the need for a more targeted and binding approach to ensure that any development of capital markets truly serves the objectives of the ecological transition.

Fight against greenwashing and revision of the SFDR

The risk of greenwashing was clearly identified by the designated commissioners during their hearings, particularly by Maria Luís Albuquerque. She emphasized that “the risk of greenwashing is real” (8) and that the current regulatory framework is insufficient to effectively address it. She notably acknowledged the flaws in the Sustainable Finance Disclosure Regulation (SFDR) – which establishes a classification of funds according to their environmental claims – and positioned herself in favor of its revision. She pointed out the misuse of the existing framework as a labeling regime, when it was not designed for this purpose. This situation creates an increased risk of greenwashing, as products are marketed and sold as “sustainable” without real guarantee. The Commissioner therefore calls for the establishment of minimum criteria to qualify a financial product as “green”. The objective is to reform the regulation so that “when a financial product or service is labeled as green, we know that it actually meets a minimum sustainability standard to be properly qualified as green”. As Reclaim Finance reminds us, one of the most obvious criteria for making such a change is the exclusion of companies that develop fossil fuels from all funds with environmental or social claims.

The Commissioner also insisted, again, on supporting companies that are not yet in transition today but are destined to be, recognizing that the majority of the productive sector is still in this phase. Here again, she emphasized the need to establish easily understandable and applicable minimum criteria for this labeling.

The recent hearings of European commissioners reveal a timid and insufficient approach to the challenges of financing the ecological transition. Without the full and complete involvement of the European Commission in redirecting financial flows, the European Union will not be able to meet its needs and thus achieve the climate objectives it has set for itself. As it stands, the persistent lack of political will, coupled with a relative absence of issues related to private finance and its effects on the climate, does not allow us to view the next five years with serenity.

Notes:

Reclaim Finance, Directive sur le Devoir de Vigilance : une occasion manquée pour la finance, avril 2024
« On Sustainable Finance, I will continue Europe’s efforts to direct more private capital towards projects that have a positive environmental and social impact, as a contribution to a more sustainable future. », Audition de la Commissaire désignée Maria Luís Albuquerque, 6 novembre 2024.
« With the Framework in place, we have to implement it », Audition de la Commissaire désignée Maria Luís Albuquerque, 6 novembre 2024.
Banking on Climate Chaos 2024 – Reclaim Finance, mai 2024
2023 Scorecard on Insurance: Fifty Years of Climate Failure – Reclaim Finance, novembre 2023
« […] without a deepening of the capital markets, we have no fair chance of getting there: not to finance the transition, not to keep funding for green activities, not to support the companies becoming green. », Audition de la Commissaire désignée Maria Luís Albuquerque, 6 novembre 2024.
« the capital markets will not solve everything », Audition de la Commissaire désignée Maria Luís Albuquerque, 6 novembre 2024.
« The risk of greenwashing is real », Audition de la Commissaire désignée Maria Luís Albuquerque, 6 novembre 2024.