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Experts lay groundwork for more sustainable investments and reorienting capital flows

What makes a “green” bond green? What makes an economic activity sustainable? And what information should a company disclose about how climate change could impact its business – and how its business impacts the climate? These are some of the questions the European Union is keen to find answers to, with the help of a panel of experts. SSFC talked to one of them: SEB’s Marie Baumgarts.

Marie Baumgarts, Head of Sustainability at SEB, is one of 35 experts from across the European Union gathered in the Technical Expert Group on Sustainable Finance (TEG) set up by the European Commission. Baumgarts spent the second half of 2018 as part of a TEG subgroup developing metrics for climate-related disclosures. They recently published recommendations for an update of the European Commission’s non-binding guidelines on non-financial disclosure. SSFC asked Baumgarts how happy she was with the outcome.

Marie Baumgarts: I am very content. Hopefully, we have contributed one piece of the puzzle towards more transparency in the market.

SSFC: Members of the TEG came from across the financial sector, for example banking and investment, insurance and utilities. What were some of the fault lines in your discussions?

Marie Baumgarts: There was a very nice and constructive atmosphere in our discussions, and we got along well. But we also had very open debates, particularly around some areas. There was the question of how to look at a company’s impact, for example, where we spent a lot of time. It was important to focus on both dimensions of impact: what consequences climate change may have on a company’s business model, and the impact a company itself is having on climate change through its value chain.

Disclosures can be powerful

SSFC: One aim of the TEG’s work – according to a presentation to stakeholders in Brussels in October 2018 – was to “unlock the power of disclosures”. What is it that makes disclosures powerful?

Marie Baumgarts: One goal of the EU action plan on sustainable finance is to re-orient capital flows towards greater sustainability. However, historically we have not measured the impact of money and can therefore at this stage not assess whether capital flows are working towards achieving the goals of the Paris Agreement. With better disclosures, that’s something I think we will be able to see. If we have better and more complete data, that is to say transparency, we can easier assess what impact money is having with regard to climate change, and that would also make it easier for stakeholders such as regulators and investors to take this information into account.

I hope that our work will lay the groundwork for more investments that work towards the Paris Agreement and the 2030 Agenda for Sustainable Development.

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Marie Baumgarts

Member of the European Commission's Technical Expert Group on Sustainable Finance

SSFC: Your group’s recent report talks about three types of disclosure: information a company “should” disclose, information it “should consider” disclosing and information a company “may consider” disclosing. One could argue that this language is quite weak, particularly when it comes to a company disclosing the impact it has on climate change.

Marie Baumgarts: To me it is the other way around, as the “should” is actually quite strong because of all that it includes. There “should” be a full-value chain reporting of greenhouse-gas emissions. That means that a company should disclose not merely emissions from its store, but those from the entire production line.

High expectations 

SSFC: Your subgroup’s report on climate-related disclosures was the first workstream of the TEG to be published. Those on “taxonomy”, carbon benchmarks and green bonds are all to be completed by June. What are your expectations regarding those reports?

Marie Baumgarts: I have very high expectations that they will support the market in its transformation towards more sustainability. The true challenge of the TEG lies in the fact that we are working on something that has basically never been done before.

Take taxonomy, for example. The aim there is to come up with a unified EU classification system for what makes an economic activity environmentally sustainable. Businesses and investors need clarity about that so that they can take more informed decisions. But currently, we have no common understanding and the challenge is to make this new system science-based and transparent. At the same time, our work on this taxonomy feeds into the proposed Taxonomy Regulation, so this will become law across the EU.

SSFC: What is your personal takeaway from participating in this group of technical experts?

Marie Baumgarts: I have met incredible people in the TEG, and sincerely hope that our work will support financial stability and lay the groundwork for more investments that work towards the Paris Agreement and the 2030 Agenda for Sustainable Development.
SSFC: Thank you very much for this interview, Marie.

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