The Commission is currently developing the EU Ecolabel for Retail Financial Products within the framework of the Sustainable Finance Action Plan. The Joint Research Center (JRC) has presented a proposal discussed at the stakeholder meeting on 25 and 26 March to which we provide comments in this paper. The current climate and environmental crises plead for an ambitious approach of this initiative.
Labelling of financial products can help driving private capital towards the investments needed in those sectors and activities that can contribute to the sustainability and transition of our economy. It is crucial that the requirements set by the Ecolabel match the ambitions of the European Green Deal to achieve the Paris Agreement targets and the Sustainable Development Goals.
However, the current JRC proposal does not correspond to the above vision because it allows investment funds deriving only 18% of total revenue from environmentally sustainable activities to obtain the label. We find that such an extremely low level of ambition would not have an impact in driving private capitals towards sustainable activities at the scale required. Moreover, it undermines the credibility of the label as a scheme of environmental excellence, making it difficult to convince citizens and creating the risk of greenwashing of financial products.
The above concerns have also been raised by MEPs Bas Eickhout and Sirpa Pietikäinen, Co-rapporteurs of the European Parliament on the Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation), in a letter addressed to Vice President Dombrovskis, Commissioner Sinkevičius and Commissioner Gabriel.
We consider that increasing substantially the ambition of the proposal is possible based on the agreement reached by the European Parliament and the Council on the Taxonomy Regulation in December 2019. The EU Ecolabel builds on the Taxonomy framework to assess the underlying assets of financial products linked to environmentally sustainable economic activities and to establish whether the financial products are sufficiently green to be awarded with the label.
The Taxonomy agreement is a game-changer for the EU Ecolabel, as it provides for disclosure of key indicators (revenues, capital and operational expenditures) from large listed corporates and for financial products. These elements are not sufficiently integrated into the JRC proposal, published shortly after the Taxonomy agreement. Moreover, as acknowledged at the Stakeholder dialogue on Sustainable.
Finance, the universe of investable activities has considerably been expanded since enabling and transitional activities are now also part of the Taxonomy. Consequently, a much larger spectrum of economic activities than foreseen initially can be included in an ecolabelled financial product.
We are aware of the fact that reliable information on taxonomy-alignment of companies is not yet available. The absence of aggregated data makes it challenging to define a meaningful threshold that strikes the right balance between level of ambition and practical feasibility for fund managers. Therefore, we have included a proposal that can help reduce the information asymmetry and enable a robust process to regularly update the criteria to tighten them over time. We have suggested a conservative proposal to set the green revenue threshold at 70% of the total portfolio.
In addition to increasing the ambition as regards the investment in green economic activities, it is necessary to ensure that consumers will not be exposed to environmentally and socially harmful activities and that the verification requirements are robust enough. Although we acknowledge that the current proposal is more comprehensive than the previous draft, there are still important shortcomings to address for which we make concrete recommendations in this paper.