Climate Finance Policy Engagement Analysis
Climate Lobbying Overview: Despite communicating top-line support for climate-related financial 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 Climate-Related Financial Policy: AFME, on its website (accessed July 2024) has expressed support for government action to create a sustainable financial system, including the EU Sustainable Finance Action Plan and the European Green Deal. In a 2023 position paper, AFME supported future EU action on sustainable finance policy with major exceptions, including suggesting that regulation should focus on unlocking green investment rather than restricting financing of harmful activities, arguing that regulation must not impact competitiveness and advocating that future policy occur at the level of the real economy rather than the financial system. In a 2024 response to the UK Transition Finance Market Review, AFME argued against transition finance regulation, stating that it is important that regulators ‘do not attempt to use financial sector regulation to actively steer the transition of the real economy.’
Position on Regulated Corporate Climate Disclosure: AFME has offered cautious support for regulated corporate climate disclosure, often suggesting a less prescriptive approach to disclosure requirements. In response to the draft European Sustainability Reporting Standards (ESRS) 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 of the ESRS 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 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. In an October 2023 response to the UK adoption of the International Sustainability Standards Board (ISSB) disclosure standards, AFME supported the proposed disclosures but stressed the need for flexibility regarding disclosure on transition planning. In May 2024, in a response to the UK Transition Finance Market Review (TFMR), AFME reiterated support for the UK adoption of the ISSB but emphasized that policymakers should not set prescriptive standards for transition plans.
Position on Taxonomies: While consistently communicating support for a sustainable finance taxonomy on its website, AFME has engaged directly with policymakers in favor of a watered-down version of the policy. 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”. In a 2024 response to the UK Transition Finance Market Review, AFME opposed a formal transition finance taxonomy. In 2023 comments on the EU Taxonomy delegated regulation, AFME suggested a delayed implementation for financial undertakings of one year.
Position on Climate Standards, Labels, and Benchmarks and ESG Ratings: In a 2022 press release, AFME opposed the European Parliament’s proposed amendment to the EU Green Bond Standard (GBS), which would make disclosures mandatory for all green bonds issued in the EU. In a 2023 press release, it expressed support for the compromise reached in the EU Parliament to adopt a voluntary approach. 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. More recently, however, in a May 2024 response to the UK Transition Finance Market Review, AFME argued against a transition finance labelling regime.
Position on Incorporating Climate Factors Into Investor Duties: In response to ESMA on its proposed guidelines on sustainability aspects of the MiFID II suitability requirements in 2022, AFME argued that the approach proposed was “too granular” and suggested a more generic approach to assessing clients’ sustainability preferences. In a January 2023 consultation response, AFME appeared to support the disclosure of integration of climate factors into investor duties but suggested timing the introduction of the Sustainability Disclosure Requirements until after the introduction of the ISSB standards. AFME, in a November 2023 statement, expressed support for the SFDR and its goal of providing investors with information to pursue sustainability preferences, but stated some concerns in relation to the implementation process. In a letter to the European Commission Director General in January 2024, AFME supported a delay in the implementation of SFDR Level 2 disclosure requirements.
Position on Incorporating Climate Factors Into Risk Management/Prudential Regulation: In feedback to the European Banking Authority (EBA) in 2022, AFME supported the risk-based approach to integration of climate and environmental risks into prudential regulation but cautioned against climate-related capital adjustments and double materiality. AFME appeared unsupportive of the need to integrate climate risk into macroprudential regulation in a 2022 joint response to the Financial Stability Board (FSB) on supervisory and regulatory approaches to climate-related risks. In June 2022, AFME 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. In a joint response in March 2024, AFME opposed the Basel Committee’s proposed climate-related disclosure framework, arguing that the proposed disclosures were unrelated to bank’s risk exposure stating that increased disclosures could lead to potential litigation. AFME, in an April 2024 consultation response, also outlined significant objections to the European Banking Authority’s draft guidelines on the management of ESG risks, arguing that the proposed guidelines would make EU banking institutions less competitive than their non-EU counterparties, and advocated instead for a principles based approach.
Position on Energy, Industry, and Land Transitions: InfluenceMap found very limited evidence of direct engagement by AFME on energy, industry and land transitions. In a May 2024 response to the UK Transition Finance Market Review, AFME expressed support for the Inflation Reduction Act of 2022 and its role in investment in clean energy, electric vehicles and methane emission reductions. In the same response AFME also appeared to support the UK zero emissions vehicle mandate.