What the European sustainable finance package could mean for expats living in Europe
If you’re living in Europe as an expat, it’s important to know how the newly published European sustainable finance package could affect your financial decisions.
On 13 June 2023, the European Commission published regulations and recommendations targeting EU taxonomy, Environmental, Social, and Governance (ESG) ratings, and transition finance.
The proposal was designed to support companies and encourage the private funding of transition projects and technologies. Additionally, the new rules for ESG rating providers were aimed at increasing the transparency of sustainable investments in the market.
So, read on to find out what the European sustainable finance package is and how it could affect your financial decisions as an expat living in Europe.
What is the “European sustainable finance package”?
The European sustainable finance package aims to support companies and the financial sector in the transition to a climate-neutral and sustainable economy, by encouraging private funding of sustainable projects and technologies.
The EU taxonomy regulations will focus on six environmental objectives:
Protection of ecosystems
Climate change mitigation
Pollution control
Climate change adaptation
Protection of water and marine resources
Transition to a circular economy.
The agenda was designed to make it easier for investors to invest in a more sustainable economy, by bringing more transparency to the ESG ratings market and introducing rules on ESG rating agencies’ operations.
Not only will the ESG rating proposal allow investors to make more informed decisions, but it could also lead to a better functioning single market in Europe.
As a result, more companies are presenting plans to transition to greener ways of working. Indeed, KPMG’s 2022 Global Survey of Sustainability Reporting revealed that an average of 79% of the leading 100 companies in each surveyed country communicated their performance and impacts on sustainability topics, including ESG parameters, in 2022. Among the world’s top 250 companies, this figure was 96%.
Match your investments to your ethics
As all our clients will be aware, in line with local regulations, we always ask your attitude to ESG and how you do, or do not, want to incorporate that into your financial and investment planning. We incorporate this along with your objectives and risk profile when making recommendations.
At Black Swan Capital we have a five point ESG scale:
You do not wish to incorporate ESG related investments in your financial and investment planning
You will only consider ESG related investments if there are no non-ESG related alternatives
You are neutral as to whether you incorporate ESG or non-ESG related investments.
You prefer to have ESG aligned investments as long as there is no expected or material impact on risk, volatility or return; and
You only want to include ESG investments in your planning.
The changes to the ESG ratings proposed by the European Commission will help you to identify those companies that take environmental, social, and governance issues seriously.
Indeed, having a clearer understanding of a company’s motives when it comes to environmental, social, and governance factors will make it much easier for you to align your investments with your ethics.
A report by Fintech in Q1 2023 revealed that Europe houses around 5,410 ESG funds, making up 77% of the global count. With the proposed changes to help more companies transition towards greener initiatives, this figure is likely to increase further in upcoming years.
Invest in ESG funds with more confidence
Knowing that the companies or funds you’re looking to invest in are either transitioning towards a more environmentally and socially conscious focus, or already paying great attention to it, will enable you to invest with more confidence.
Having more transparent ESG ratings means that there is less of a risk of “greenwashing”, making it easier for investors to know who to trust.
When it comes to ESG investing, there has always been a fear that some companies will mislead potential investors by falsely claiming to focus on ESG. The proposals in the European sustainable finance agenda are designed to allay these fears and provide investors with more confidence and peace of mind.
Have more choices in the market
With the European sustainable finance package including recommendations on transition finance to help investors and firms understand how to approach transitioning towards greener initiatives, you could potentially have more investment opportunities in the future as a result.
With the amount of sustainable investment opportunities not currently meeting the demand for ESG funds or products, the sustainable finance package is designed to help ease this mismatch.
With more companies and funds potentially focusing on ESG in the near future, you could have a greater variety of options to choose from. Similarly, companies that you have invested in that don’t currently focus on ESG, but are looking to, could see an uptick in their market performance as a result of transitioning towards greener initiatives. This could, in turn, increase the likelihood of you earning positive returns from these investments.
Reduce your carbon footprint
Investing in companies and funds that focus on ESG not only gives you an opportunity to align your ethics with your investments but also helps reduce your carbon footprint.
Understand the potential for long-term returns
With companies focusing on ESG factors tending to have a lower risk of reputational and financial losses, investors can take advantage of the potentially more stable returns.
According to Morningstar, over a five-year period between 2017 and 2021, ESG investments outperformed relative to non-ESG funds. On average, 57% of ESG equity funds beat their category index, with 63% of ESG funds outperforming their category index over a three-year period.
Of course, past performance is not an indicator of future performance, so you could be best served speaking with a financial adviser before making any investment decision.
Get in touch
If you’re an expat in Europe and you’d benefit from holistic advice about your wealth, speak to us.
We will work with you to develop a structured and flexible financial plan to help you navigate the different financial environments while living abroad. Please contact us at info@blackswancapital.euand we’d be happy to help.
Risk warnings
Investments carry risk. The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
