Corporate provision companies will take on a key role in the structural change towards a climate-neutral economy. As institutional investors they may contribute significantly to reducing the impact of climate change and to make the transition to a more sustainable and more resilient economy.
By integrating sustainability aspects in relation to Environmental, Social and Governance (ESG) factors into the regulatory and supervisory legal frameworks, capital flows should now accordingly be diverted towards sustainable investments in accordance with the European Commission’s Action Plan on Sustainable Finance and the Green Deal, and measures pushed for overcoming financial risks arising from climate change, natural catastrophes and social problems as well as for promoting transparency and long-term thinking in financial and economic activities.
Legal Framework
The following legal acts with a particular relevance for corporate provision companies have been issued for implementing the European Commission’s Action Plan for Sustainable Finance:
- Disclosure Regulation (EU) 2019/2088 Regulation on sustainability-related disclosures in the financial services sector
- The Benchmark Regulation (EU) 2019/2089 – amending Regulation (EU) 2016/1011 as regards EU Climate Transition Benchmarks, EU Paris-aligned Benchmarks and sustainability-related disclosures for benchmarks
- The Taxonomy Regulation (EU) 2020/852 – Regulation on the establishment of a framework to facilitate sustainable investment
The FMA’s Priorities for Supervision
While accompanying supervised entities in the transition process, the Austrian Financial Market Authority (FMA) has set strategic framework conditions, intensified the dialogue with supervised entities set the following priorities:
Asset Screenings
The FMA is conducting various analyses of the transitional risks in investment, in order to identify those assets in the portfolios that would be exposed to potentially higher fluctuations in price during a transition to a more CO2-neutral economy. Furthermore, portfolios in shares and corporate bonds have been valued and analysed under different transition scenarios regarding the decarbonisation of the economy, about the extent to which companies in which the provision companies invest, need to their CO2 emissions to achieve a pathway that conforms with the Paris Climate Agreement’s objectives.
Climate Stress Test
The FMA regularly conducts stress tests to analyse the risks and vulnerabilities of the financial sector especially with regard to the current economic climate as well as for assessing the risk capacity of the individual undertakings. For this purpose, the FMA also examines the impacts of future climate policy, the advent of low-carbon technologies, the economy’s level of adaptation or the occurrence of extreme events.
ESG Dialogue
In accompanying insurance undertakings in the transition process in order to achieve the objectives of the European “Green Deal” the FMA has intensified its dialogue with the industry, to inform it about current developments, the FMA’s initiatives and the results of the asset screenings as the earliest possible juncture.