The transition to net zero is a journey, not a point in time, and it encompasses three key elements to succeed: 

First, growth - critical to afford the investment the transition requires and on which Europe has not been excelling recently – less than 30% GDP growth over the last two decades, vs almost 60% in the case of the US.  

Second, joint action across public and private agents. Banks are enablers of the transition, and we are progressing towards aligning our business strategy to net zero pathways. But the challenge requires action from many more, including – governments, regulators, companies and individuals. Governments need to define specific transition pathways for key sectors and technologies, together with the accompanying policy tools and incentives to facilitate the transition.  

Third, the efforts must be directed towards greening what is brown today. The challenge is not for European players to stop financing brown, but greening it in a way that supports economies, communities and the transition, acknowledging that starting points are different.  

These three points should all be reflected in the climate related regulation, so it drives an agenda that fosters the transition and creates the necessary conditions for growth, competitiveness and investment to happen. We should always assess whether the all-encompassing regulatory and supervisory framework the EU has, and remains developing, is contributing successfully to promoting sustainable growth. 

Banks´ role is to focus on how to best support our clients´ transition journey, by engaging and defining new solutions addressing their needs. We are spending too much time implementing complex requirements stemming from the Taxonomy, CSRD, SFDR and other initiatives. As a result, many see sustainability as a practice that comes with too additional costs and risks, while opportunities are still nascent and uncertain. An enabling environment that fosters innovation to find better solutions is required, providing players with trust and confidence to explore and decide on key action to support the transition, motivated by opportunities more than fearing risks or penalties. 

The goal is clear: net zero economies by 2050. The different political momentum can explore different ways to get there. In Europe the new political cycle presents an opportunity to, first, assess how the initiatives adopted to date are contributing to the goal of financing the transition of the economy, and second, simplifying certain approaches that prove too complex to be implemented by companies, while providing little upside. The EU Taxonomy, in addition to rigorous significant contribution criteria, includes Do not significant Harm and Minimum Social Safeguards even for retail operations. Taxonomy criteria should be ingrained in activities and information should be available and flow across market agents. Banks cannot be investing on gathering information from different sources of which not even the debtor is aware. Hence, simplifying the taxonomy approach whilst keeping the same level of ambition (science-based target of 1.5º) should be sought. 

In addition, Europe has the chance to seek further coordination with other jurisdictions to progress on the task ahead. Welcomed progress has been attained between the ISSB and EFRAG on reporting standards, but, still, differences remain which make it difficult for companies operating globally. As both standard setters continue with their mandates, it is essential that maximum interoperability is reached across them. Simplification efforts are also needed, including reviewing the number of templates and detailed information that companies need to report on.  

The way forward is not to slow down on the transition efforts. We need to do more, following the premise that orderly, just transition depends on concerted action, supporting transition and growth and a regulatory framework that is an enabler, not a trap.  

We need more targeted, feasible and efficient approaches, fit for purpose. The temptation in sustainability is often to aim for perfection, but the magnitude and shortage in time to succeed requires pragmatic approaches and alignment of all agents towards the end goal – driving transition, without undue distractions.