Sustainable Finance
Trinomics’ deep understanding of sustainable finance is applied across four key topic areas including EU Sustainable Finance, international green taxonomy work, green finance tracking and greening of financial systems. As the field is becoming progressively complex and cross-cutting, Trinomics makes sure to apply the full range of our diversified expertise sitting within our climate, energy, circular economy, and environment pillars. Indeed, the sustainable finance topic is increasingly a priority for us as we aim to maximize our social impact by moving capital towards sustainable development. Amongst others, we have supported the development of the EU Renewed Sustainable Finance Strategy and provided advisory for the development of the EU Taxonomy and complementary disclosure regulations. We are furthermore involved in projects supporting the extension of the Climate components of the EU Taxonomy, the development of the Taxonomy regulation concerning the four environmental objectives of the Taxonomy, and a social taxonomy. Our expertise also serves the area of green finance tracking, where we as an example provide consultancy to the European Investment Bank for their environmental sustainability tracking system. Finally, we work with regulators and public banks to develop sustainable finance strategies as well as to implement such strategies as they aim to navigate and integrate the mounting regulations and recommended best practices.
Green finance tracking
- Monitoring and reporting of green finance commitments is a central plank of the effort to mobilise resources for sustainable development. Improving tracking of countries and financial institutions means gathering better information on the benefits of financial commitments to all sectors. It is important to ensure that financial commitments contribute positively to climate change mitigation and adaptation and environmental benefits.
- Tracking methodologies differ between countries and financial institutions, which hampers a consistent, aggregated view of how much is spent on sustainability topics. Without transparent tracking methodologies, there is a risk of double-counting sustainability efforts of the different institutions. Moreover, while some sectors are widely reported with relatively granular data, in others such as adaptation, energy efficiency, and nature-based solutions, reporting is still challenging.
- Trinomics is involved in the improvement of methodologies to track green finance and in the development of reporting guidance for national governments and international financial institutions, such as the International Development Finance Club (IDFC) and the Multilateral Development Banks (MDBs). We have a large track record in the development of climate finance tracking methodologies. More recently, our experts are working on the measurement and reporting of financial commitments to biodiversity and other environmental objectives.
Green taxonomy
- The challenges of a rapidly warming planet and other aspects of environmental degradation have motivated a call for all actors in society, including the financial sector, to take responsibility for environmental sustainability. Finance for the low-carbon transition will have to come from both the public and private sectors, leveraging all asset classes and involving a wide range of actors, including international financial institutions, central banks and financial regulators, banks, and institutional investors. It is therefore important that all actors “speak-the-same-language” and common definitions of “green finance” are established. Key instruments to achieve this, amongst others, is a green (finance) taxonomy which classifies sustainable economic activities, combined with a complementary disclosure regime that ensures high quality reporting on the activities for which real economy and financial sector actors are involved in. A well-defined and structured green taxonomy, as a tool, can support better-informed and more efficient decision making and response to investment opportunities that contribute to achieving (national) environmental objectives.
- Although policymakers, civil society, businesses, and financial markets are increasingly collaborating to integrate Environmental, Social and Governance (ESG) issues into their investment decisions, there is a lack of harmonize and internationally accepted definitions of what a called “green investments”. Globally, various countries have started efforts to develop their (national) green taxonomies (e.g. European Union, United Kingdom, South Africa, Mexico and Singapore) for their financial markets and within their specific context(-s), addressing various environmental objectives and challenges. While this is an important development towards reorienting finance for the green transition, financial markets operate globally and without geographic boundaries, implying that establishing an international standard for green taxonomy definitions remains a challenge.
- Trinomics has been involved in Green Taxonomy discussions from the beginning, advising various key actors including, amongst others, the EU Platform on Sustainable Finance, the Technical Expert Group on Sustainable Finance, the European Commission, and the European Investment Bank (EIB), as the EU’s Climate Bank, on the development of definitions, principles and criteria. The content of the services we provide are highly interconnected with our large track record on developing climate finance tracking methodologies, providing us with unique and complementary expertise to further support the development and implementation of (national) sustainable finance frameworks.
EU Sustainable Finance
- The EU is the front-runner internationally with respect to the creation of financial regulations that can speed up the transition towards a green economy. From the EU’s Action Plan on Sustainable Finance, the three main objectives were to re-orient capital towards sustainable investment, main-stream sustainability into risk management and foster transparency and long-termism in markets. The main pillars towards achieving these objectives include the Taxonomy Regulation, the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD). Together with complementary tools and regulations, these instruments are critical for creating high quality information about the practices and strategies behind economic transactions, based on a common methodology for what constitutes sustainable economic activities, as well as common reporting standards. Via the Renewed Sustainable Finance Strategy, the EU is also working to accelerate finance for transitional economic activities, to influence the global sustainable finance agenda, and to increase access to finance for citizens and small and medium enterprises. Altogether, EU sustainable finance will play a key role to re-shape the rationale of finance towards sustainable investment.
- The current problem we are facing is the inability to shift the necessary amount of capital towards sustainability. There is a large investment gap with regards to reaching the bold climate targets set forward by the EU, and on the international level via the Paris Agreement. If we cannot mobilize the necessary capital, we will not achieve our policy targets and as a result, communities across the world will be heavily impacted by the damages of climate change. To minimize this issue, Trinomics is motivated to support EU policy makers in the development of ever more sound financial regulation, as it will serve our future livelihoods.
- Trinomics has been involved in the EU sustainable finance discussion from the beginning, advising various key actors including, amongst others, the EU Platform on Sustainable Finance, the Technical Expert Group on Sustainable Finance, the European Commission, and the European Investment Bank. Our projects for these institutions include high-level analysis and support to the implementation of the EU’s Renewed Sustainable Finance Strategy, development of policy options for sustainable finance in Member States, alignment of financial institutions’ investment strategies with EU regulation, and stakeholder consultations on the EU Taxonomy and Sustainable Finance Disclosure Regulation. The content of the services we provide are highly interconnected, providing us with unique and complementary expertise to further support the development and implementation of the EU sustainable finance framework.
Greening financial systems
- Changing environmental factors, such as for instance climate change, have created instability, uncertainty, and added another layer of complexity to the financial system. To better understand the effects of these environmental impacts on financial stability, it is vital for financial supervisors to develop suitable tools and apply interventions to increase agility, responsiveness and preparedness. Importantly, as environmental change accelerates, there is a need to tackle environmental risks, including both physical and transition climate risks, where the latter has been given relatively high importance among policymakers. Regulatory efforts at the EU level as well as internationally have made sustainable finance a particularly high priority item from the prudential risk supervision perspective. National central banks and financial market supervisors have begun monitoring financial institutions’ exposures to non-financial companies that can be affected by climate-related risks, as well as gauge their impact on the banking system, while evaluating the role of financing in the transition to a low-carbon, climate resilient economy.
- As a response to regulatory efforts, policymakers, civil society, businesses, and financial markets are increasingly collaborating to integrate solutions to combat the climate change and other Environmental, Social and Governance (ESG) issues into their investment decisions. We are currently witnessing a rapid reorientation of investment portfolios of various financial institutions to achieve alignment with ESG principles and sustainable development objectives. Ensuring that the investment for the green economic recovery post Covid-19 is sustainable combined with the impetus to achieve net-zero emissions by 2050 provide both short- and long-term guidance for this alignment.
- Trinomics has been involved in projects that aim to help governments and regulators to assess their environmental risk exposure as well as helping financial institutions to reorient their portfolios. Trinomics is helping various national governments, Multilateral Development Banks and national promotional banks to reorient their portfolios with sustainability objectives. Among others, Trinomics supports the development of (national) Sustainable Finance Roadmaps, as well as (national) sustainable finance ecosystems, in order to align investments towards the Sustainable Development Goals (SDGs).
