The European Commission is proposing new rules requiring asset managers to disclose how they are taking environmental risks into account when making investments on behalf of their clients.
The rules will also oblige asset managers to spell out what potential risks might have on returns, Valdis Dombrovskis, commission vice president responsible for financial stability, financial services and capital markets union, told a news conference in Brussels.
"Their duty toward their clients includes making sustainability risks part of their decision making process," Dombrovskis said.
Asset managers will also have to disclose how they incorporate environment, social and governance objectives into their investment decisions. The requirements will be adopted in 2019.
The EU unveiled a sustainable action plan in March and is looking for ways to increase more environmentally friendly investments within the bloc.
"When it comes to climate change we are running out of time," Dombrovskis said. "The Titanic could not turn to avoid the iceberg at the last minute, and we will soon be in a very similar situation."
The Commission also said it was proposing a low-carbon benchmark, which will remove the carbon risks from a standard benchmark such as the S&P 500. The choice of underlying stocks would be determined by their level of carbon emissions, it said. It also plans to create a positive-carbon impact benchmark based on companies whose carbon emissions were in line with the objectives of the 2015 Paris Climate Agreement, which aims to limit global temperature rise to 2 degrees Celsius above pre-industrial levels.
"We want to give investors who want to invest in low carbon strategies an appropriate tool to enable them to compare the performance of their investment," European Commission Vice President Jyrki Katainen told journalists.
Under the Commission's sustainable action plan, it wants to create a classification system to define what exactly is a green investment, and Dombrovskis said the Commission would mandate a group of experts to draw up guidelines on what economic activities and sectors were sustainable. The classification system should be ready in the second half of next year and will be put into force six months later, Dombrovskis said. The system will help provide an EU label for green bonds and investment funds.
