Message from the CEO, Nina Schindler
Co-operative banks place climate action at the heart of their strategies. They have set up numerous initiatives, especially for SMEs at local level, aiming to accompany clients and members in the green transition by financing their projects. To make a sufficient amount of funds available for this huge exercise, the right policy choices are essential. Incentive-based approaches and transparency should be the main pillars of such a framework.
The new EU strategy to finance the sustainable transition is a step in the right direction. As co-operative banks, we welcome the new actions envisaged by the EU Commission, which are geared at facilitating and incentivising the uptake of green finance by retail clients and SMEs, such as the establishment of new labels for green retail loans and green real estate loans. Moreover, an effective sustainability path that also includes grassroots players requires a broad involvement. In particular, smaller companies require direct public support in their transition efforts, for example to allow them to assess their exposure to climate risk by suitable tools and data. And when it comes to financing, SMEs need banks that help them in structuring the financial part of their projects and accompany them all the way. That is where we see the role of co-operative banks in the green transition.
3 Questions to Alexandra Jour-Schroeder, Deputy Director General, DG FISMA, European Commission
Alexandra Jour-Schroeder is Deputy Director General of the European Commission´s Directorate-General for Financial Stability, Financial Services and Capital Markets Union since March 2021. In her function, Alexandra Jour-Schroeder supervises and monitors the policies of the Directorate General.
- You recently participated in a fireside chat organised by the EACB in the context of the COP26. What messages would you like to highlight from your intervention for our readers and what would be your take-aways?
The European Commission is firmly engaged on the sustainability path, but this is a path it must not walk alone. We need to do this with all actors of society.
Financial institutions play a vital role in this common endeavour. We have set out a comprehensive Sustainable Finance Strategy to translate the objectives of the European Green Deal throughout the financial system and assist banks and financial institutions on their sustainability journey.
The banking industry needs to address this systemic challenge. The financial sector itself will need to be more resilient to the risks posed by climate change and environmental degradation. The ability of banks to identify and manage these risks and eventually absorb any financial losses arising from them is key for financial stability. We are looking at mainstreaming a “double materiality” perspective, which looks at both financially material sustainability risks of an investment and its sustainability impacts across the financial market. The Commission´s new “Banking Package” adopted just ahead of COP 26 provides clear and operational requirements for banks to identify, measure, manage and monitor sustainability risks in their risk management frameworks.
Looking beyond the EU, we have to promote our domestic achievements internationally. To date, EU actors are for example the largest issuers of green bonds and have emerged as major sustainable investors. But the challenge is global and we also want a global level playing field for the international sustainable finance architecture.
- How does the European Commission want to ensure that the enormous amounts of funds that are necessary to finance the transition to a sustainable economy are made available?
Let´s be honest: this is a rather daunting task. Europe will need an estimated EUR 350 billion in additional investment per year over this decade to meet its 2030 emissions-reduction target in energy systems alone, alongside the EUR 130 billion it will need for other environmental goals.
We can however be confident that we will succeed. We have a number of tools in our toolbox to mobilise private funding of sustainable investment within our ambitious deadlines. There are the three building blocks for the EU´s sustainable financial framework: the ‘taxonomy’ of sustainable activities, a comprehensive disclosure framework for non-financial and financial companies, and a series of investment tools, including benchmarks, standards and labels. Altogether they form a good mix of attractive incentives.
Since 1 January 2022, the first EU Delegated Act defining the conditions under which a specific economic activity qualifies as contributing substantially to climate change mitigation/adaptation under the taxonomy is now in place. It will be a game changer to finance the transition of industrial activities that today account for almost 80% of direct greenhouse gas emissions in Europe. Furthermore, our 2021 Sustainable Finance Strategy will ensure that actors across all sectors of the economy are able to finance their transition regardless of their starting point.
The EU is also taken important steps to address greenwashing in the financial market. The new European Green Bond Standard is one of them.
- Where do you see (co-operative) banks in this process and is there a need to strengthen their role and their lending-power?
The strong commitment of the EACB members and co-operative banks to contribute to the green transition is welcome. Cooperative banks are indeed key players in the implementation of the EU´s Green Deal and the EU´s Sustainable Finance Strategy. They can contribute significantly to our ambitious objectives by channelling financing for sustainable projects to households or SMEs. Many sustainable projects will be small and developed at local level – yet essential to supporting the green recovery and transition.
For example with green loans helping households and SMEs to improve the energy performance of their buildings or switch to zero emission vehicles.
One challenge for (co-operative) banks is access to climate and sustainability data to allow to assess companies’ sustainability profile in the lending process. The Commission´s new initiative for a European Single Access Point (ESAP) will address this issue by providing easier, centralised access to the ESG data of EU companies thereby contributing to the transition to sustainability.
In order to allow banks to better identify ESG risks in their business strategies and their evaluation of internal capital needs, the European Banking Authority (EBA) is working on guidelines that should be fit for use in 2023.
We want to accompany the (co-operative) banks in the sustainability process through clear and predictable rules and frameworks.
Second Opinion from Nicolas Théry, Chairman, Confédération Nationale du Crédit Mutuel
Nicolas Théry has been Chairman of Confédération Nationale du Crédit Mutuel since 2016 and Chairman of Crédit Mutuel Alliance Fédérale and CIC since 2014. He was Chairman and Chief Executive Officer of CIC Est from 2012 to 2016. From 2002 to 2009, Nicolas Théry worked at the European Commission as Chief of Staff to Pascal Lamy, Commissioner for International Trade before joining the Directorate-General for Environment where he focused in particular on climate change. From 2000 to 2002, he was Confederal Secretary of the CFDT (the main employees’ union in France) in charge of economic issues. He helped to set up the inter-union employee savings committee and the Vigeo rating agency created by Nicole Notat.
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When it comes to banking, we must all do our part in moving towards greener initiatives, projects, and mindset. To limit warming to +2°, we must reduce emissions by 5% each year, starting now. And this transformation requires a full spectrum transition. Every company, bank, insurer, and investor must review and adjust their business models. We must go further.
Still, there are several important challenges that our banks are facing:
- Compliance: successfully completing the various projects and face of a multitude of requests from regulators and supervisors (stress tests, taxonomy, CSRD, SFDR., ESG criteria in the granting of credits, in Pillar 3,)
- Data: the availability of our clients' data is fragmented, particularly in relation to retail banking (as opposed to large corporate companies that publish information). The extension of sustainability reporting obligations (under the CSRD-corporate sustainable reporting directive) is an important step forward.
- Client support in their transition: banks finance the economy and therefore the various sectors that make up the economy. This is even more relevant for co-operative banks as they finance the real economy in a long- term approach.
As we focus our action at the local and regional level placing SMEs and households, our motto remains "Leaving no one behind". In many remote parts of Europe, co-operative banks represent the exclusive access to finance and are the only player supporting customers in the transition path.
The new green deal is already a great mean for transitioning but banks also need a taxonomy framework on a larger scale. All sectors play their role and companies need more guidance and simple methodologies. On this topic, we recommend a forward-looking approach that defines “different levels of green transition”.
As such, Credit Mutuel Group has joined the Net Zero Banking Alliance in May 2021. Through it, we are committed to aligning progressively our lending and investment portfolios with net-zero emissions by 2050, by accompanying our clients in their own progressive transition. In addition to this, in 2020, we decided to launch a coal policy: we are no longer financing new coal-related projects and we will no longer have any coal commitments in 2030. Furthermore, we decided to immediately cut € 500 million from commitments on activities related to coal.
Overall, climate change is a global challenge that requires internationally aligned efforts and focus. Indeed, it is particularly needed on these tree priority areas: green taxonomies, climate risk methodologies and forthcoming sustainability reporting standards. However, with the Basel 4 regulation, the financing of the green transition is at stake. Therefore, a balance between regulatory requirements and the time of their deployment is required. From a banking perspective, we have progressed, learned and we are evolving but much remains to be done.