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Cambridge Institute for Sustainability Leadership


31 January 2018 – Andrew Voysey, Director, Sustainable Finance at the University of Cambridge Institute for Sustainabiity Leadership (CISL) discusses the ten most striking features of The European Commission‘s report by its High Level Expert Group (HLEG) on Sustainable Finance, published today. CISL was the only academic institution to be appointed to HLEG.

Today marks a major milestone in how we ensure that the financial system channels capital into a truly sustainable economy – one operating more equitably and within environmental limits. The European Commission has published a profound report by its High Level Expert Group (HLEG) on Sustainable Finance. The HLEG was convened to advise how sustainability should be integrated into Europe’s financial policy.

Amongst an esteemed group of private sector and external experts, CISL was the only academic institution to be appointed. Here, I highlight the ten most striking features of the HLEG’s report for me.

1. Political backing

Simplistically, government advisory groups are set up for one of two reasons: to provide cover for delay or input into action politicians already want to take. Midway through the HLEG’s term, it published interim recommendations. Within weeks, two recommendations had already been implemented. My sense is that Europe’s political leaders are serious about the HLEG’s mandate setting the scene for a raft of bold actions.

2. The forgotten citizen

I believe that for all the progress the responsible investment industry has made over recent decades, its greatest failing has been towards the investing public. The average saver or investor is quite open to doing good with their money but the system they face can't tell them what environmental and social impact their money is having. These customers are the citizens, voters and workers whose interests are bound up with whether we deliver a green, sustainable economy or not. The HLEG has addressed this omission with recommendations that would help retail investors gain access to information and advice about the impact of their money as a matter of course, inspired in part by work we’ve developed over the last several years with the Investment Leaders Group.   

3. Bank lending

Banks play a crucial role in supporting economic activity through their lending. They are regulated to ensure they manage risk appropriately, including regulators stipulating how much capital banks must hold against their various lending activities. A significant HLEG topic relates to whether such ‘capital requirements’ should be different for lending to green versus brown projects to spur more green lending. The key debate hinges on how to create such a differential. Should it be based on the upside to society of green projects? Or the likelihood of brown projects being more risky to banks? With the Banking Environment Initiative (BEI), CISL published research on precisely this question in 2014, concluding that a risk-based approach is wiser and more practical.

4. Insurance

The HLEG has taken note of the growing understanding amongst insurers, long articulated by insurance leadership group ClimateWise, that “more than 4 degrees Celsius of warming this century would make the world uninsurable”. It recommends that regulators ensure insurers are taking climate risk into account not just in their annual pricing of risk, but in their longer-term investment and strategy decisions. It also advises that any regulatory barriers to insurers investing in long-term, zero-carbon solutions should be addressed.

5. Sustainability risks and financial regulation

Every year, the World Economic Forum reviews the risks facing the global economy. This year, it is clear that risks emanating from our impacts on the environment top the list. Regulators responsible for overseeing risk management of the financial system have not been routinely integrating ‘environmental’ risks into their supervisory activities. Notable exceptions exist, such as the Bank of England, Dutch Central Bank and Banque de France, but following the HLEG’s work this is now set to become a priority for the European authorities that set the banking, insurance and investment regulatory frameworks.

6. Investor duties

As the HLEG says, “explicitly linking the duties of investors to the investment horizons and sustainability preferences of the individuals and institutions they serve is key to achieving a more sustainable financial system”. For too long, the debate about the duties of such fiduciaries with respect to sustainability has taken place ‘outside’ of the financial system and has not sufficiently penetrated the behaviours and actions of the system itself. The HLEG is shining a spotlight on this in an attempt to drive truly system-wide change through how the supply of capital is governed.

7. Defining green

One of the most frequent frustrations in any conversation with mainstream financiers who want to develop ‘green finance’ products is that they aren’t clear ‘what is green’. The HLEG has recommended that Europe develops a Sustainability Taxonomy by 2020. If done well, this would provide the basis for all financial institutions to increase systematically the volumes of ‘green finance’ they deploy, including through innovative new products, working off a common definition of ‘good’.

8. Towards mandatory disclosure of climate-related risks

Transposing the voluntary recommendations of the Financial Stability Board’s Taskforce on Climate-related Financial Disclosures (TCFD) into common practice is a challenge Boards and Governments around the world are grappling with. The HLEG has tackled this head on, mapping out a short, sharp phase of structured experimentation and learning before advising that the TCFD recommendations are embedded in Europe’s mandatory disclosure frameworks.

9. Where is the good stuff?

Many in the market will tell you that there is no shortage of money looking for green or sustainable opportunities. The problem is that investors can’t easily find enough suitable projects to invest in. The HLEG has recommended the creation of ‘Sustainable Infrastructure Europe’ that will “accelerate the development of high-quality infrastructure projects that meet investor demands”. If this kind of market lubrication is needed at a European level, what lessons are there for cities and regions, or other parts of the world?

10. What’s missing: fintech!

The digital revolution within finance – everything from peer-to-peer platforms to distributed ledger technologies – has transformative implications. With big data and machine learning, we ignore it at our peril. Fintech and related digital technologies can inject, at scale and low cost, data on ‘green’ into the system, allowing investors to differentiate between green and brown. Many nations, including the Swedes, have recognised this strategic imperative and CISL and the BEI have developed a body of multi-stakeholder innovation. Its omission from the HLEG, besides a few references, is a missed opportunity.

Individually, each of these points should be celebrated. Taken together – along with the rest of the report’s recommendations – this truly is a profound moment in the evolution of a sustainable financial system. But, of course, the report is just offering advice. The focus now turns to giving the European Commission the support it needs to implement this ambitious agenda in its upcoming Action Plan.


Articles on the blog written by employees of the University of Cambridge Institute for Sustainability Leadership (CISL) do not necessarily represent the views of, or endorsement by, the Institute or the wider University of Cambridge.

About the author

Andrew Voysey

Andrew Voysey is Director, Sustainable Finance at CISL. He has led the growth of CISL’s work with investors, banks, insurers and their regulators for the decade since the global financial crisis. He is responsible for CISL’s long-term collaborations with over 50 financial institutions, across five continents, that evolve business practices so that finance supports a more equitable and environmentally sustainable economy. He also leads CISL’s advisory work with financial policymakers and regulators and overseas its research activities, designed to produce cutting-edge insights that are actionable by leaders in government, business and finance.

Andrew is an Academic Visitor at the Bank of England and a Fellow at the Royal Geographical Society.


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