27 March 2019

AFME comments on Taxonomy Regulation

AFME consider that the identification of sustainable economic activities and their degree of sustainability is a significant positive step in an orderly transition towards a low-carbon and climate resilient economy, to which AFME is fully committed.

AFME stresses that most economic activities, companies and industries are currently at different stages of their transition journey towards low-carbon standards and the transition is expected to extend beyond the end of 2021. Therefore, AFME believes that creation of a taxonomy for activities with negative environmental impact in the short term would not take into consideration products that might not necessarily comply with the “green” criteria in the nearest future, but which would still contribute to or would be in transition to a more sustainable investing. It thinks that incorporating the criteria for economic activities with a significant negative environmental impact in the short term could lead to large scale divestments especially for activities where alternative technologies are not yet developed, which may jeopardise an orderly transition of the EU economy towards low carbon activities. AFME also believes that a taxonomy on “brown” activities would generate financially punitive effects for all companies performing those activities. These firms would be equally financially discriminated regardless of their benefits brought to society otherwise and regardless of their internal practices and policies (including those to progressively reduce negative impact on the environment).

AFME is concerned that the definition of “financial products” was expanded to include “issuances” according to Directive 2003/71/EC and Regulation (EU)2017/1129). It stresses that banking institutions distributing products issued by the corporate sector might not be able to adequately assess and disclose whether such products comply with the Regulation. This is due to the fact that corporates are not included in the definition of a financial market participant per the Regulation and thus would not be obliged to disclose the same level of information necessary for banks to perform the required detailed assessment.

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