The economic and social fallout from the global pandemic requires investment and immediate response mechanisms to support swift recovery. Sustainable finance, which showed surprising resilience in the wake of the coronavirus crisis, could step in as an opportunity to rebuild national economies and help the transition into a greener and low-carbon future.
“Sustainable investments gained momentum and there is an overwhelming interest in finding green projects,” started Ákos Lukács, Senior Manager of Environment, Sustainability, Climate Change at Deloitte Hungary in a discussion organised by V4SDG. “This is clearly demonstrated by the success of green bonds designed specifically to support climate-related or environmental projects.”
Mr Lukács mentioned Hungary, as the latest Member State to issue a green bond, which was more than five times over-subscribed, signalling investors’ needs to finance sustainable and future-proof projects.
Until now, there is no uniform green bond standard within the EU. Therefore establishing such a standard is high on the agenda of the European Commission. The EU executive launched a public consultation on the issue just a week ago closing in October.
“Green bonds will help boost the wider private sector buy-in, necessary to jumpstart a sustainable economic recovery that is in line with the European Green Deal,” highlighted the Executive Vice-President Valdis Dombrovskis, responsible for Financial Stability, Financial Services and Capital Markets Union.
“The supportive evolution of the European regulatory environment such as the underlying metrics in the EU taxonomy for sustainable financing but also setting out clear guidelines on disclosure all gives supporting hands to companies,” underlined Mr Lukács.
The resilience of the sustainable investments was also demonstrated by the performance of investments incorporating the ESG (Environmental, Social and Governance) criteria.
“Those funds which are ESG proved haven’t lost that much in value as others, therefore these funds are easier and cheaper to finance and also presents a lower risk to investors,” said Mr Lukács.
Assessing the impact of the pandemic impact both on EU emissions and on carbon prices is challenging, however, according to Mr Lukács the quota price within the ETS system, which is the EU’s greenhouse gas emissions trading scheme, has kept its strength compared to previous similar shocks when it collapsed.
“The regulatory tools that are already in place or will be in place by the next emission trading period has serious potential to drive the carbon prices higher,” he said, adding that the technological learning curve and the declining cost of new technologies are also pushing carbon prices upwards.
“Plans to extend the emission trading system to the full economy would naturally contribute to this trend as the price of carbon would reflect the emission reduction potential of all incorporated sectors,” explained Mr Lukács.
The European Green Deal was a natural regulatory tool of the EU already before the crisis, concluded Mr Lukács adding that the Commission’s recently announced recovery fund, the Next Generation EU together with the revamped long-term EU budget will help the financial market to create leverage and strengthen climate-related spending.