The European Commission will only consider reducing capital requirements for banks involved in environmentally friendly projects once it clearly defines what green financing is, according to a senior EU official.
Europe's banks would like the EC to reduce capital requirements for lenders that finance eco-friendly projects, known as the green supporting factor. Under its recently announced plan on sustainable investment, the EC said it would explore the matter, and Ugo Bassi, its director for financial markets, told a conference in Paris on March 13 that the commission would concentrate first on clearly defining the term.
"We have identify what is green and what is not green," he said. "We have to make sure that we give the right signal to the investor community."
Bassi said the EC was "open" to the idea of a green supporting factor, adding that a definition was key to avoid so-called green washing, which refers to companies making investments sound more environmentally friendly than they really are. He said the commission wanted to avoid making decisions that were "unjustified and which could even make the whole process lose its credibility."
Bassi added that the EC was launching a technical group that would work with the financial industry on identifying green investments and would create a clear classification system, or taxonomy.
The commission needs to invest €180 billion annually to meet its pledge of reducing CO2 emissions by 40% by 2030, and Bassi said the EU needed the help of the private sector to meet its goals.
"It is clear that there is an investment gap in order to achieve the objectives of the Paris agreement," he told the conference.
