Environmental factors play an increasingly important role in financial markets

Bucharest, 12 November 2021 - The European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA) expressed their commitment at the UN Climate Change Conference to contribute to a sustainable financial system, as part of the European Green Deal and international efforts to that end.

European financial markets are at a turning point, where investor preferences are moving towards financial products that incorporate environmental factors.

“Environmental factors are increasingly affecting the return and value of investments, as shown in the latest Report on Trends and Risks in Local and International Financial Markets, prepared by the Financial Supervisory Authority. There is a growing concern, at the level of states and governments, but also at the level of the leaders of the world’s financial markets, about the necessary transformation of the economy to fight global warming. From the perspective of the markets supervised by the Authority, the entities operating in these financial sectors will have to undertake a process of adapting their development strategy, risk management and transparency of their processes to the future context, so as to incorporate specific measures and directions combating global warming and significantly reducing climate risk”, says Mr. Nicu Marcu, President of the Financial Supervisory Authority.

Given these challenges, ESMA has a key role to play in helping investors better understand the impact of environmental, social and governance (ESG) factors on their investments and how an investment contributes to a sustainable future.

To support this, ESMA published the Strategy on Sustainable Finance in February 2020, which sets out concrete actions for the integration of ESG factors in all its areas of activity.

Along with other activities in the area of sustainable finance, EIOPA will complete in 2022 the European pilot dashboard on insurance protection gap for natural catastrophes, which will raise awareness of the role of insurance against climate hazards.

EIOPA expects the insurance and pension industry to assess climate risks, for example as part of its own risk and solvency assessment (ORSA) by insurers or through information on how their activities contribute to the transition to an environmentally sustainable economy.

More details about the risks and trends of the week on the financial markets can be found in edition no. 45/10.11.2021 - Trends and risks report on local and international financial markets, which can be accessed HERE.