Greening the economy

As he prepares to take on the role of Commission Vice-President for An Economy that Works for People, Valdis Dombrovskis tells us why sustainable finance is essential both in safeguarding our planet’s future and making the financial sector a part of the green transition.
credit: Natalie Hill

How would you define sustainable finance and why is it important to the European Commission’s climate agenda?


I see sustainable finance as any form of financial investment, service or product that builds environmental, social or governance factors into business or investment decisions.


It should reduce pressure on the environment and social inequalities and lead to more investment in longer-term sustainable activities that benefit society as a whole.

For example, green finance is essential for safeguarding our planet’s future. Not only because of the urgency of fighting climate change but also because of the need for private capital to fund the massive amount of investment needed to transition to a low-carbon economy.

It aims to raise financing to pay for everything from small-scale energy efficiencies to national low-carbon transport systems and sustainable infrastructure projects.

The EU remains committed to meeting the Paris Agreement targets and the new Commission intends to go further still and achieve a climate-neutral economy by 2050.

There is no time to lose. Sustainable finance is policy that will help us to shift the trillions of euros needed to make one of the greatest transformations in history.


One of the aims of Commission President-elect, Ursula von der Leyen, is to create a climate bank. How do you plan to achieve this?

Since funding will be vital for the green transformation, Europe will need to make much larger amounts of investment available.

The plan is to turn parts of the European Investment Bank (EIB) into a Climate Bank. I believe that the EIB’s current mandate and institutional set-up is broad enough to cover this increased climate ambition.

The EIB has a long history of financing climate action. Ten years ago, it played a pioneering role on the green bond market by issuing the world’s first climate awareness bond.

Of all multilateral lenders worldwide, it is the largest provider of climate finance – and therefore best placed to become Europe’s Climate Bank.

Since 2010, the bank has had a target dedicating a minimum 25 percent of lending to climate action projects.

Each year, lending reported under this objective has exceeded the target. We want this figure to double by 2025.

"There is no time to lose. Sustainable finance is policy that will help us to shi­ft the trillions of euros needed to make one of the greatest transformations in history"

How will you dissuade Member States from investing in fossil fuel projects, particularly those that rely heavily on coal-produced energy?

To succeed in making the transition to a climate-neutral economy, we need to have EU Member States on board.

EU funding programmes are one example where a shared vision is necessary and where we have already earmarked funding for climate-friendly projects.

Taxation, carbon pricing and subsidies have an important role to play in setting long-term signals to guide investors towards sustainable investment and steer changes in the behaviour of firms and households.

However, we also have to address the legitimate concerns of certain countries and regions when it comes to the transition. They do not want to lose out or become marginalised.

This is why we will work to make sure that the transition is fair for everyone. We will propose a Just Transition Fund to help these regions and countries develop viable projects as well as design additional ways to facilitate the transition.

It will not happen overnight; it may take a good deal of time, perhaps decades. But we need to move now, because the cost of not moving could be even greater.

To create a Sustainable Europe Investment Plan, how does the EU envisage raising the required goal of €1 trillion; doesn’t it need to create a fully-fledged Capital Markets Union first?

The Sustainable Europe Investment Plan will need to play a major catalysing role, supporting about €1 trillion in investment over the next decade everywhere in the EU.

For that we also need good projects and a clear understanding of what is green. What we really need now is to reach agreement on an EU classification of green economic activities or, as we call it, the EU taxonomy.

I would say that this is the single most important piece of legislation for our future policies as well as for providing guidance to market participants.

It will provide us with a common language of what a green investment is in practice. And it will end greenwashing - a current practice where financial products are sold as sustainable or green but are, in fact, not.

We are now implementing our Action Plan on Sustainable Finance. Its main objective is to facilitate private capital flow to sustainable and green projects.

Everyone involved in capital markets has a role to play: exchanges, institutional investors, asset managers, financial advisers, companies issuing shares and green bonds.

In that sense, capital markets and the broad financial sector are already contributing to the green transition. The demand for green financial products is growing.

"EU funding programmes are one example where a shared vision is necessary and where we have already earmarked funding for climate-friendly projects"

In order to reach zero emissions within Europe, what kind of tools is the EU considering in partnership with the financial markets, beyond the issuing of green bonds?

There are several areas where we could go further to stimulate investment for the green transformation.

Along with looking at the idea of green bond standards, the Commission will soon start preparing other green finance initiatives.

Buildings, for example, are the EU’s single largest energy consumer – but about 35 percent of them are over 50 years old and almost 75 percent of the building stock is energy-inefficient.

So, we will look at incentivising tools such as a green mortgage standard to help people improve the energy efficiency of their houses, and possible ways to encourage banks to issue these loans.

Another area of work will focus on expanding the EU ecolabel to financial products.

Why is ‘taxonomy’ important to sustainable finance, and how do you plan to reconcile differences in the Council, given, for example, problems caused by including nuclear power which has divided the council?

The EU is the first jurisdiction to legislate on green and sustainable finance. The taxonomy will define green and sustainable economic sectors and activities, and translate EU and international environmental, climate and energy standards into a language that investors and consumers can use everywhere.

That way, they can more easily channel their funds into sustainable and green projects. The same goes for policymakers.

As regards the divergent positions in the Council, I believe that the taxonomy should be science-based, technology-neutral and consistent across sectors – and that there should be a transparent process for developing it.

Any economic activity, including nuclear energy, needs to be assessed in line with these principles.

We are pleased to see that Member States also share the sense of urgency on the need to put the taxonomy in place as soon as possible.

So, I hope that MEPs and Member States will reach final agreement in trilogue by the end of this year.

In your upcoming new mandate as Vice-President for An Economy that Works for People, how will you tackle tax evasion and deal with concerns that multinationals are not paying their fair share?

The Commission and the EU have already been instrumental in addressing corporate tax avoidance, with far-reaching measures to introduce more transparency and close loopholes.

We launched a debate on an EU-wide tax system for multinationals and initiated a global discussion about how digital giants are treated for tax purposes.

Our rules have simply not kept pace in a world where companies are increasingly turning digital, a trend that is unlikely to slow down.

Our work has been a catalyst at the OECD, where there is now real momentum and progress: we should see tangible results for a future-proof international tax reform by 2020. But any new system must work for everyone.

The EU needs a common approach which incorporates views from all Member States, including those that would otherwise find it difficult to have their say around the table.

That said, work on international tax reform should continue to address the challenges of the digital economy.

If the negotiations do not lead to real systemic change, we will revisit the proposals that we designed specifically for the Single Market.

Commission President-elect Ursula von der Leyen has been clear that if no consensus is found in 2020, we must move forward with measures designed for the EU’s Single Market.

"What we really need now is to reach agreement on an EU classification of green economic activities or, as we call it, the EU taxonomy"

Finance is increasingly becoming digital with the rapid rise of fintech and the use of cryptocurrencies. You said a common approach is needed - how will this look, and which new measures/ policies will you consider?

Technological innovation can bring great economic benefit for the financial sector, promoting competition, broadening consumer choice, increasing efficiency and saving costs.

Stablecoins, for example, present opportunities for cheap and fast payments as well as financial inclusion - with many people in Europe still without a basic bank account.

At the same time, we should acknowledge the risks that relate, for example, to consumer protection, privacy, taxation, cyber security, money laundering and terrorist financing.

I think we should differentiate between smaller-scale FinTech activities and stablecoin cryptocurrency initiatives, which have the potential to reach a global scale.

On the one hand, we do not want to harm our growing fintech hotspots; we want to help innovative European companies to develop and create more jobs.

On the other hand, global initiatives such as Libra, the blockchain digital currency proposed by Facebook, could create risks to monetary policy, financial stability, fair competition and monetary sovereignty.

So global stablecoin projects should not enter into operation until all of these concerns are properly addressed.

How will you drive economic growth in the next few years, given the major differences in the economic conditions of Member States, with some countries running huge deficits while others run surpluses?

It is true that there are clouds on the horizon and all international organisations have revised the economic outlook downwards due to persistent uncertainty.

The main reason is prolonged trade tensions. Geopolitical conflicts, for example, in the Middle East, do not help. Brexit is an additional source of uncertainty for the UK and European economies.

While the European economy is expected to grow in the second half of 2019, this will be at a slower pace than previously expected.

Due to the external environment, I would say that prospects for 2020 remain cloudy. However, I would like to emphasise that our economies are showing resilience – for example, jobs are still being created and EU28 unemployment stands at the lowest rate recorded since the start of the century.

The service sector is currently showing resilience. But it is true that not all high-debt countries have used good economic times to bring down their debt levels.

I would urge countries that have fiscal space to use it now – this is the right moment to do so.

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