Sustainable Finance and Next Generation EU:
ItaSIF’s call for a concrete government commitment on eight actions
On October 19th 2020, ItaSIF sent a letter to the Prime Minister Giuseppe Conte and five Ministers reporting eight proposals on the use of sustainable finance tools to direct the resources of the Next Generation EU plan towards decarbonisation objectives and social inclusion.
Below the full text of the letter:
For the attention of
the President of the Council of Ministers, Mr. Giuseppe Conte
the Minister of Economy and Finance, Mr. Roberto Gualtieri
the Minister of Economic Development, Mr. Stefano Patuanelli
the Minister of the Environment, Land and Sea Protection, Mr. Sergio Costa
the Minister of Infrastructures and Transport, Ms. Paola De Micheli
the Minister of European Affairs, Mr. Vincenzo Amendola
Honorable President, Distinguished Ministers,
Given the epochal challenges that Italy and Europe are currently faced up with, we call upon you to steer a significant proportion of the Next Generation EU funds to climate change mitigation and adaptation in view of a just transition, social equality and inclusion.
We believe that this strategy – alongside consistent management of public spending as a whole – allows to act on a number of weaknesses in our country, seize new growth opportunities and achieve the long-term goals set by the Government. This stance is in line with the guidance from the European Commission, which has defined the EU Green Deal as a “growth strategy”. Based on the “Oxygen for Growth” report by REF-E – to which Forum per la Finanza Sostenibile has contributed – if Italy were to spend 80% of European funds to decarbonize the economy, it would achieve a 30% increase in GDP and an 11% increase in the employment rate by 2030.
No projects and investments are possible in these sectors without social cohesion, protection of less favored social groups, reduction of inequalities and enhancement of the human capital. Hence, alongside climate action, it is necessary to start making long-term investments to support households, restart education, enhance the value of the Third Sector and support those in society who have suffered most from the crisis, such as women and the young.
In light of the 2021 international commitments (G20 and COP26 in particular), national priorities for economic recovery will impact the international credibility and leadership of our country as well as the ability of the international community to urgently fill the gap between the actions of countries and the need to reduce greenhouse gas emissions, in line with the Paris Agreement and consistently with the principles of the European Pillar of Social Rights.
In this situation, sustainable finance players can have a fundamental role, alongside the public sector, in managing Next Generation EU funds. Importantly, public-private partnerships will have to be leveraged on as a driver of investments in the real economy in the long term and under a favorable tax treatment; these investments will have to reach out to such sectors as are strategic for climate action, capitalizing on the time-honored experience of sustainable finance players and ensuring an adequate distribution of the financial risks that are inherent in innovation.
The Italian Sustainable Investment Forum (ItaSIF) – which has been advocating Sustainable and Responsible Investment (SRI) in finance over the last twenty years – calls for a concrete government commitment on eight actions:
1) Use the European taxonomy of eco-friendly activities in order to identify the strategic sectors in respect of which action needs be taken in view of achieving the six EU environment- and climate-related goals, while putting climate-change mitigation and adaptation higher up on the agenda. According to the taxonomy, all actions are required to comply with the “do not significantly harm” principle as well as with minimum social clauses. Among the crucial areas identified by the European Commission, we have selected five to which we believe investments for recovery and resilience need be directed:
- renewable energy and energy efficiency;
- e-transport and smart mobility;
- eco-friendly buildings and social housing;
- sustainable farming, forestry and food supply chains;
- circular innovation of urban areas and industry.
In particular, these investments should focus on the regeneration of urban suburbs and inner cities as well as on the renovation of properties that house healthcare facilities and schools.
2) Promote sustainable finance instruments that speed up the shift of investment funds away from fossil fuels and to renewable energy sources, while steering the just transition towards a more inclusive and environmentally-friendly economy.
3) Align public finance instruments with climate benchmarks to direct funds to projects that are compatible with the goals of the Paris Agreement and to attain climate neutrality by 2050, on a precise decarbonization trajectory. The activities eligible for financing include: R&D of businesses (including SMEs) that operate in the field of vehicle electrification (e.g., charging networks upgrade, battery efficiency, reduction of the energy intensity of raw material procurement and vehicle production).
4) Issue sovereign and regional green bonds to raise funds for key green transition projects (e.g., for land safety through sustainable infrastructure such as storage, batteries, and green hydrogen; for zero-emission public transport, powered by electricity from renewable sources; for energy requalification and adaptation of public buildings; for the allocation of revenues to the forestry sector and for the decarbonization of farming and livestock breeding).
5) Issue sovereign and regional social, sustainability and transition bonds, which can be used to: boost the strength and efficiency of the healthcare system, including above all services for local communities; make the school system more inclusive and bridge the digital divide; add jobs – especially for the young and for women – and to retrain staff in sectors that will be most heavily impacted by the transition, such as the energy and automotive sectors.
6) Modify budget constraints and debt caps in respect of the issuance of sovereign and regional green and social bonds, which would help enhance debt quality. In addition, a regulatory and policy framework should be established to further develop the market for the green and social bonds issued by companies and financial organizations.
7) Encourage the provision of sustainability-linked credit lines: the targets under the UN SDGs can be reference criteria for setting interest rates on loans. Use of these credit instruments could encourage companies and SMEs to increase the quantity and quality of non-financial reporting, which is fundamental for the development of sustainable finance.
8) Support impact investing through initiatives that can benefit the environment and society, with a measured and reported impact as well as with an adequate return on invested capital. At this stage, efficient use of capital, measurement, reporting and transparency towards EU institutions and citizens are essential.
In addition to this, it is necessary to establish an investment plan that does not put the burden of growth on the shoulders of future generations and ensures the sustainability and resilience of public finance.
On the basis of the eight actions set out above, we call upon the government to undertake a concrete commitment to use these instruments in order to deploy the funds intended to stimulate recovery and resilience both under Next Generation EU and other public finance plans.
Forum per la Finanza Sostenibile is ready to collaborate with institutions by making available the wealth of skills and expertise it has gained over time, including as a result of ongoing engagement with its members.