Bankers demand clarity as Swedish watchdog balks ESG rules

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In Sweden, where green bonds were launched, a warning from the financial regulator that it may not have the tools to enforce the European Union’s new sustainability rules has sparked frustration and disarray among members of the financial sector. .

In one consultation response At the Swedish finance ministry, the Stockholm Financial Supervisory Authority said the EU’s new taxonomic requirements would place an unreasonable burden on the watchdog. The letter is signed by Managing Director Erik Thedeen, who is also chair of the International Organization of Securities Commissions Sustainable Finance Working Group.

“The Swedish FSA is considered to be a leader advocate for the greening of the entire financial system, ”said Roger Josefsson, sustainability manager at Danske Bank in Sweden. But in their letter, “they themselves declare that they do not have the necessary skills to assess the sustainability risks of the credit and investment portfolios of banks and financial institutions.”

It’s the latest indication that the financial sector is struggling to adapt to regulatory changes that are set to revolutionize the way businesses, banks and investors do business. EU taxonomy is just one plank among a whole slew of new rules that are still evolving, as Europe races ahead of the rest of the world to put in place a new economic model that he hopes , will protect the planet from a climate catastrophe.

The Swedish FSA’s response is part of a national consultation process that is likely to inform Europe’s approach to building a comprehensive framework for climate-friendly finance. The Stockholm-based FSA says it will need more resources if it is to have a chance to cope with the new demands, but suggests that even that may not be enough.

First green bond

The Swedish answer is striking because it shows that even in a market where green bonds represent a much larger proportion of the total than elsewhere and where first green bond was taken out in 2008, there is a lot of confusion. Most complain about a lack of clarity, while others say there is simply too much new data to digest.

Kristin Magnusson Bernard, Managing Director of Swedish Pension Fund AP1, says “the rules of the game are what matter to us. We therefore hope for more clarity on policy and regulation, and we will ask for it before the UN summit, COP26, this fall. Because once we have more clarity on where to transition and what will pay off in the long run, it’s much easier for us as investors to start funneling more capital into the right direction. direction.

Victor van Hoorn, executive director of Eurosif, the European Forum for Sustainable Investment, said some regulators have started to “set thresholds or define a little better what these different products are.” But given the lack of clarity from above, they are “all likely to come up with different local responses.”

The result is that Europe risks “market fragmentation” due to the range of different interpretations, said van Hoorn. Ultimately, the lack of consensus means “there are going to be concerns about greenwashing,” he said. “There are going to be concerns about the most fundamental point of comparability between products.”

Swedish FSA says it is currently “unclear” whether its “oversight responsibilities should include reviewing the extent to which underlying investments meet environmental requirements” set out in the new EU rules . If this is the expectation, it would be “inappropriate” because the regulator “does not have the competence for this type of supervision,” he said.

The letter from the Swedish FSA suggests that “even with sufficient funding, the necessary skills would be very difficult to obtain,” according to Josefsson. And within the financial industry, “of course we also see the need to address these issues head on and as quickly as possible. But to what extent? What is the garden stick? As an industry we need politicians and regulators as well as academia to take action until the plate and tell us how to do it. In detail!”

AP1’s Magnusson Bernard says the next 5-10 years will be key, which means “we need clarity now”.

“For that you need a rulebook in place,” she said. “Once it’s there, the capital market can do whatever it’s supposed to do.”

– With the help of Frances Schwartzkopff

(Updates with FSA Supplementary Funding Request in Fifth Paragraph)

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