This article was written by Nadia Humphreys, Head of Climate Finance and Regulatory solutions at Bloomberg.
In the European Commission’s June package of regulatory proposals and guidance, a useful document was published on facilitating finance for the transition to a sustainable economy. These recommendations are designed to help Europe realise its ambition to be the first climate-neutral continent with a sustainable economy.
In order to achieve its goals, the Commission set out an ambition to reduce greenhouse gas emissions by 55% by 2030. It sized the investment needed to achieve those goals at around EUR 700bn more each year from 2021 to 2030 (relative to 2011 to 2020 investment). A flagship product in Europe’s armoury was legislation creating labels for Climate Transition (CTB) and Paris Aligned Benchmarks (PABs) in 2019. PABs require a 50% reduction in greenhouse gas emissions compared to the parent index in year one, and then a 7% year-on-year reduction of emissions.
Since their inception, funds tracking CTB/PABs have raised assets exceeding EUR 116bn according to the European Commission. However, according to Bloomberg’s funds data, a further EUR 275bn sits in European domiciled funds with ‘climate’ or ‘carbon’ in their description but not flagged as tracking/ CTB/PABs. Whilst these products have attracted impressive inflows since their launch, the total amount still falls short of the EUR 700bn target needed.
Concern has also emerged that ‘climate’ or ‘carbon’ related financial products may have differing ambition levels and that not all of them may be aligned with Europe’s net zero goals.
