Financial firms face new EU disclosure requirements on green investment

The European Commission proposed on Thursday new rules to force asset managers, insurers and pension funds to disclose how they take into account environmental risks in their investments and abide by clearer criteria when they claim “green” credentials.

The plan is meant to spur green investment and to curb “greenwashing”, a practice whereby companies and other organizations claim to be more environmentally friendly than they really are.

“We want to establish an EU-wide classification system for sustainable activities, to provide common definitions for what is green and what is not. This is a ground-breaking step,” the EU commission's vice-president Valdis Dombrovskis said.

He said it would be the first time the EU had developed a classification system for environmentally-friendly investments. The EU commission dropped an initial plan to lower capital charges for banks and investors who decide to invest in green projects after warnings from credit rating agencies that such a move could weaken banks' financial stability.

Dombrovskis said the commission was nevertheless supporting a similar plan put forward by EU lawmakers and would help them to properly calibrate the preferential capital treatment for green holdings and put in place some safeguards. “Green does not necessarily mean risk-free,” he told reporters.

The classification system for green investments will be developed in several months and after technical advise from experts, to give financial firms time to adapt. Asset managers opposed the move when the commission first flagged it in March but their objections were not heeded.