Sustainable Finance Lobbying Overview: Despite communicating top-line support for sustainable finance policy in Europe, the Association for Financial Markets in Europe (AFME) has generally engaged against decisive regulatory intervention in this area in the EU and the UK.
Top-line Messaging on Sustainable Finance Policy:AFME has stated support for the role of the finance industry in meeting EU climate goals and has commented on the need for financial markets to be "geared towards sustainability" but has stopped short of articulating the need for systemic reforms to the financial sector. In a consultation response to the European Commission in 2020, AFME warned against policy actions that would penalize investments/ lending to highly emitting sectors. Since then, it has offered broad support for the EU’s aim to drive a more sustainable financial system, with Adam Farkas, Chief Executive of AFME, supporting the EU Renewed Sustainable Finance strategy in a press release in 2021. In 2023 comments to the European Supervisory Authorities (ESAs) on a call for evidence on “greenwashing”, it highlighted that "intentional or negligent misrepresentation" should be differentiated from cases where the financial institution is not at fault and suggested they should identify gaps in current regulations before creating additional initiatives.
Position on Taxonomies: While consistently communicating support for a sustainable finance taxonomy on its website, AFME engaged in-depth with EU policymakers in favor of a watered-down version of the policy. For example, in a statement on the European Parliament negotiations in March 2019 it opposed expansion to cover environmentally harmful activities, which it restated in feedback to the Commission on the Renewed Sustainable Finance Strategy in 2020. In a 2021 white paper, AFME further supported the creation of a “transition framework” alongside the taxonomy, with unclear impact on the policy and stated concerns in the harmonization of disclosures and taxonomy regulation to Cabinet members of Commissioner McGuinness. In 2023 comments, AFME suggested a delayed implementation for financial undertakings of one year on the draft delegated regulation with technical screening criteria and reporting requirements underpinning the EU Taxonomy Regulation, amongst other technical exceptions. In 2021, AFME offered broad support for the UK Green Taxonomy in its website, however, in comments on the Update of the UK’s Green Strategy in 2022, AFME cautioned against certain usability challenges from the EU Taxonomy, such as an “overly prescriptive Do No Significant Harms (DNSH) approach”.
Position on Regulated Corporate ESG Disclosure: AFME has offered cautious support for sustainable corporate reporting, often suggesting a less prescriptive approach to disclosure requirements. In feedback to the European Commission on the review of the Non-Financial Reporting Directive (NFRD) in 2020, AFME was supportive of mandatory ESG reporting requirements, including on ESG impacts, as well as the expansion of the scope of the NFRD to cover large unlisted companies and a simplified framework for SMEs. However, in feedback to the Commission in 2021, it cautioned against the requirement on multinational companies and suggested a phased-in approach. In response to the draft European Sustainability Reporting Standards in 2022, AFME cautioned against the volume and complexity of metrics and suggested a less granular and phased-in approach to implementation. In response to the European Commission's proposal on the First Draft in 2023, it highlighted that the approach to materiality proposed by the Commission (which allows companies to determine which indicators are material to report on) needs to be considered under Sustainable Finance Disclosure Regulation (SFDR) reporting for financial institutions.
In response to the Financial Conduct Authority (FCA) in the UK in 2021, it opposed certain disclosure requirements proposed, such as extending the scope to listed debt and suggested a delay in implementation of TCFD metrics due to a lack of data availability. In response to the call for evidence by the UK Transition Plan Taskforce (TPT) on transition plan disclosures in 2022, AFME offered broad support. However, in feedback to the disclosure framework and implementation guidance, it opposed a number of disclosure elements proposed due to "potential reputational and legal risks for companies”, such as future impact on financial positions and performance, as well as engagement with industry.
Position on ESG Standards, Labels & Benchmarks: In a Commission consultation in 2020, AFME stated broad support for the EU Green Bond Standard (EU GBS), whilst cautioning against alignment with “a very restrictive taxonomy” and not supporting the Commission’s suggestion to create a social bond standard. During 2022, AFME opposed the European Parliament’s proposed amendment to the EU GBS, which would make disclosures mandatory for all green bonds issued in the EU in press releases and media outlets. It later expressed support for the compromise reached in the EU Parliament to adopt a voluntary approach, and also highlighted that further work needs to be done on the taxonomy in order to maximize adoption. In a 2021 consultation response, AFME also cautioned against UK regulators considering the development and creation of a UK green bond standard. In feedback to the Financial Conduct Authority (FCA) in the UK on Sustainability Disclosure Requirements (SDR) and investment labels in 2023, it supported efforts being made on the SDR and welcomed the proposed labels, however, it still called for the inclusion of products that go beyond ESG integration and that would not qualify for any of the sustainable investment labels proposed.
Position on Integrating ESG into Investor Duties: In response to the ESA’s Sustainable Finance Disclosure Regulation (SFDR) consultation on investor ESG disclosure in 2020, AFME argued for a less prescriptive approach, including a reduced number of mandatory indicators. Also in feedback to the European Commission in 2020, it suggested a broader description of sustainability under MiFID II amendments, with an unclear impact on the stringency of the policy. In response to ESMA on its proposed guidelines on sustainability aspects of the MiFID II suitability requirements in 2022, AFME did argue that the approach proposed was not appropriate and suggested a more generic approach.
Position on the integration of ESG factors into risk management, prudential regulation and stress testing: In a 2021 white paper, AFME suggested that ESG risk integration should allow for non-prescriptive and flexible methodologies and supported a phased-in approach to ESG integration into Basel’s Pillar 2 framework. In response to the European Banking Authority (EBA) in 2022, it supported the risk-based approach to integration of climate and environmental risks into prudential regulation but cautioned against adjustment factors and double materiality. In response to the European Central Bank in 2020, AFME supported a delay to recommendations on climate-related risks for banks, although in a 2022 press release, AFME appeared to support the ECB’s climate stress tests as a learning exercise. In a joint response to the Financial Stability Board (FSB) in 2022 on supervisory and regulatory approaches to climate-related risks, AFME appeared unsupportive of the need to integrate climate risk into macro prudential regulation. At the same time, it offered support for the work being made by the Bank of England and the Prudential Regulation Authority (PRA) in the UK on integrating climate risk into their supervisory framework.
Transparency: AFME has disclosed policy positions for all relevant sustainable finance policies, including some detail of activities to influence these policies. It is also transparent about its general and board membership, although it has not disclosed full membership of committees and working groups.