It’s been a while since our last batch of bulletins, so here are some of the stories you may have missed in the interim…
A long-awaited EU taxonomy for sustainable finance activities was formally approved on 21 April, marking what some key experts have welcomed as a watershed. Published in the form of a Delegating Act, the taxonomy’s text is the result of political consultations between the EU’s College of Commissioners, and has been issued on a provisional basis – meaning that it is a living document that will evolve over time to reflect developments in the field.
In a statement, the European Commission explained: “The EU taxonomy is a robust, science-based transparency tool for companies and investors. It creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. It will also introduce disclosure obligations on companies and financial market participants.”
It added: “Today’s Delegated Act… introduces the first set of technical screening criteria to define which activities contribute substantially to two of the environmental objectives under the Taxonomy Regulation: climate change adaptation and climate change mitigation. These criteria are based on scientific advice from the Technical Expert Group on sustainable finance.”
Valdis Dombrovskis, executive vice president of the EU’s An Economy that Works for People initiative, said: “Europe was an early leader in reforming the financial system to support investments for climate change. Today, we are taking a leap forward with the first-ever climate taxonomy, which will help companies and investors to know whether their investments and activities are really green. This will be essential if we are to mobilise private investment in sustainable activities and make Europe climate-neutral by 2050. This is a ground-breaking step for which we have consulted far and wide.”
One significant source of acclaim for the breakthrough was Nathan Fabian, chair of the Platform on Sustainable Finance, which had advised the Commission on the development of the rules. Earlier in April, Fabian had given a Reuters interview in which he had urged the Commission not to give way to political pressure by diluting the measures. However, in a personal statement released via Twitter, Fabian said: “The taxonomy is an extraordinary intervention in the EU financial markets – a common language to describe investments that substantially contribute to achieving a sustainable Europe.”
He added: “The announcement of the first Delegated Act for adoption under the Taxonomy Regulation, delivering the first set of technical screening criteria, is a welcome and critical step for the implementation of the EU Taxonomy. Financial market participants and corporate issuers can now get on with preparing for their disclosures.”
Another warm welcome came from Climate Bonds Initiative CEO Sean Kidney, who helped to devise his organisation’s voluntary taxonomy system. In a tweet, he hailed the Delegated Act as “an extraordinary advance”, adding: “Does it need improvement? Yes it does. But we have managed to change debate about climate: talk is now about what should be counted as relevant to addressing climate challenges.”
Find the full text of the Delegated Act here.
A move by India, Japan and Australia to strengthen shared supply chains across the Indo-Pacific left China’s foreign ministry rattled at the end of April. Announced in a virtual trilateral meeting, the Supply Chain Resilience Initiative (SCRI) was positioned as a grand exercise in risk management in the wake of the pandemic – but has been interpreted in Beijing as a snub, as the venture will enable the three partner nations to edge away from a reliance on China’s supply chains.
Appearing at the meeting were Australian minister for trade, tourism and investment Dan Tehan, Indian minister for commerce and industry Piyush Goyal and Japan’s economy, trade and industry minister, Kajiyama Hiroshi.
In a joint statement of 27 April, they wrote: “Based on… high-level consultations among Australia, India and Japan since September, [we] noted the importance of risk management and continuity plans in order to avoid supply chain disruptions and affirmed [our] commitment to strengthen resilient supply chains. Possible policy measures may include: i) supporting the enhanced utilisation of digital technology; and ii) supporting trade and investment diversification.”
They added: “The SCRI aims to create a virtuous cycle of enhancing supply chain resilience with a view to eventually attaining strong, sustainable, balanced and inclusive growth in the region. [We] consented that expansion of the SCRI may be considered based on consensus, if needed, in due course.”
In response, China foreign ministry spokesperson Zhao Lijian bristled: “The formation and development of global… supply chains are determined by market forces and companies’ choices. Artificial industrial ‘transfer’ is an unrealistic approach that goes against [those] economic laws and can neither solve domestic problems, nor do anything good to the stability of the global industrial and supply chains – or to the stable recovery of the world economy.”
Zhao added that China hoped the three nations would “cherish the hard-won outcomes of international cooperation in the fight against the epidemic [and] act in ways conducive to enhancing mutual trust and cooperation, so as to jointly ensure the global… supply chains [remain] stable and unimpeded.”
The Bank of England (BoE) is actively weighing up the potential of issuing a central bank digital currency (CBDC), it emerged on 13 May. In a speech, BoE deputy governor for financial stability Jon Cunliffe noted that the institution is preparing to launch a discussion paper on the public policy implications of non-commercial, Bank-based digital money, in response to rapid technological developments in the commercial realm.
Addressing the Digital Monetary Institute at independent think tank the Official Monetary and Financial Institutions Forum, Cunliffe pointed out that “we could now, in payments, be in a ‘Blackberry’ world about to see the introduction of the ‘iPhone’”, and it was therefore necessary to contemplate where technology is likely to take money in the coming years.
He noted: “I do not think that demand for cash will entirely disappear any time soon. Many still rely on it for a number of reasons. But cash – and, by extension, public money – is becoming an ever-smaller fraction of the money we use in the UK and increasingly unusable in a digital world. We may not be there yet. But it looks probable in the UK that if we want to retain public money capable of general use and available to citizens, the state will need to issue public digital money that can meet the needs of modern-day life.”
Cunliffe stressed: “Introduction of a CBDC would be a very major public project, which would have material implications for the financial sector, many parts of the economy and for society more broadly.” He noted that Chancellor Rishi Sunak has established a special Treasury- and BoE-led task force “to ensure a strategic approach is adopted between the UK authorities, as we collectively explore the issues posed by CBDC.” While not wishing to pre-empt that unit’s work, Cunliffe nonetheless suggested that any considerations of digital public money going forward should be made in acknowledgement of two points:
Read Cunliffe’s full speech here.
Trade finance could be in for a big boost following proposals by the UK Law Commission to grant electronic versions of bills of lading and exchange the same legal status as their paper-based twins.
Announcing a consultation on the matter, the Commission said that, if implemented, the reforms “could revolutionise global trade” and rejuvenate all of its underlying processes. The Commission noted: “International trade is worth more than £1 trillion to the UK and plays a vital role in the health of the domestic economy. However, due to legal requirements, trade still relies on the use of billions of paper documents, which is costly, inefficient and a risk during global crises such as the coronavirus pandemic.”
The organisation’s commercial and common law specialist, Professor Sarah Green, said: “Electronic documents have the potential to make global trade more efficient, cheaper and more secure. Until the law catches up with the relevant technology, however, these benefits – worth billions every year – will not be realised. Our proposals would bring the law and global trade into the 21st century, generating benefits on an international scale.”
For further details on the consultation, click here.
On a related note, trade finance network Contour has joined forces with enterprise-grade digital trade platform MineHub to push for digital transformation in the mining and metals industries. Under their partnership, MineHub trades will flow seamlessly into the Contour network, where digital letters of credit will be generated via application programming interface connectivity.
The partners aim to bring greater trust and transparency to what they currently regard as ‘fragmented’ metals and mining supply chains and trade finance processes – assisting data flows across global trade routes and connecting buyers, sellers and banks.
Contour CEO Carl Wegner said: “Partnering with MineHub is a natural fit as we are both striving to make doing business across borders better and smarter, reducing time, cost and risk. We both use cutting-edge enterprise blockchain technology to deliver on this goal, and the combined power of our offerings will greatly improve how information is shared throughout the life cycle of a transaction in the metal