A regular briefing for the alternative asset management industry.
Last week, we hosted a seminar looking at the likely impact of the EU's sustainability reforms on private markets – and the message delivered by our keynote speaker was clear: we are in the last chance saloon. The PRI's Nathan Fabian, Chairperson of the European Platform on Sustainable Finance, told our audience that the EU's current reform agenda is "market-friendly". But, he warned, if the market does not play its part, the next version may not be.
The EU's Green Deal is at the core of the EU's plan for achieving its 2030 Climate Target Plan and setting Europe on a path to Net Zero by 2050 – and it is ambitious. The European Commission has made clear that it expects financial markets to play a key role in providing up to €350bn to finance the transition. But time is short and Fabian argued that good intentions are no longer enough. The finance community, including private markets, must now take concrete actions.
The EU's Taxonomy, a UK-version of which is also planned, will be vital to channel funding towards solving the planet's environmental problems – extending beyond the climate emergency and including biodiversity, water conservation, pollution and the circular economy. In future, the intention is that all economic activities will have a binary categorisation: they will either contribute to clear environmental objectives, or they will not. Asset managers will not be forced to invest in assets that are in the first category – at least, not yet – but they are likely to have to report how much of their portfolio is invested in "good" assets. Even though, initially, a typical portfolio may only show 5-15% taxonomy-alignment, as 2030 approaches there will be pressure for asset managers and asset owners to increase that proportion significantly.
...policy-makers will re-calibrate their interventions if real change is not forthcoming in the coming years...