In the last seven years, the European Union has positioned itself as a leader in sustainable finance – expected to be critical in supporting Europe’s long-term economic competitiveness and resilience.
Over the past year, however, the global economic and political context has shifted dramatically; the US government has pivoted away from its climate commitments, and the incentives and constraints facing the US financial sector have changed substantially. While Europe still leads on all measures of sustainable finance, some cracks are starting to show: market players are dropping financed decarbonisation targets and leaving climate alliances, and the pace of overall expansion in sustainable finance has slowed considerably.
The EU responded by launching a revision of its sustainable finance framework via the Omnibus package, a group of proposals to simplify EU rules and boost competitiveness, but this strategy may backfire: skewing the playing field for businesses obligated to make disclosures while depriving investors of crucial data to evaluate sustainability.
These challenges have emerged as insurers and reinsurers are increasingly expected to underwrite the financial sector and wider economy against the risks of extreme weather events. While some local private insurance providers have developed successful models to meet this demand, collaboration at the EU level could help bridge the insurance gaps that persist. Despite this, it remains unclear how public policy, financial regulation and financial market supervision can support the insurance and reinsurance sectors in fulfilling this role.
These topics and more were discussed this week during Bruegel’s conference in Madrid, the latest in a series of 20th anniversary events. The recording is now available online.