Guide to Environmentally Friendly Finance Developed by Scientists in Ispra
In an effort to support the implementation of sustainable finance, the Higher Institute for Environmental Protection and Research (ISPRA) has published a comprehensive handbook titled "The Environmental Challenge for Sustainable Finance". This resource offers guidelines and tools for businesses and investors to report on environmental sustainability in line with the new European regulatory framework on sustainable finance.
The handbook encourages the use of harmonized, publicly available environmental and financial databases such as those maintained by the EU Joint Research Centre (JRC) and ISPRA itself. These databases cover a wide range of environmental hazards and risks, including climate change impacts, and provide standardized data crucial for comparability across portfolios and sectors.
Reporters (financial institutions, businesses) are encouraged to adopt methodologies that integrate environmental risk factors, like climate change-induced physical risks, into financial analysis and sustainability reporting. This includes assessing risk exposure geographically using national environmental classification schemes and ISPRA’s environmental monitoring data.
The handbook aligns with major protocols like the GHG Protocol, covering key greenhouse gases, supporting accurate and comprehensive emissions accounting for businesses and investors. ISPRA’s participation in international climate transparency and reporting reflects its commitment to evolving reporting standards, emphasizing transparency, verifiability, and alignment with climate goals such as those in the Paris Agreement.
ISPRA updates and maintains a large database of environmental indicators (over 200), which serve as a basis for reporting environmental sustainability performance. These indicators cover aspects critical for sustainable finance reporting, facilitating businesses' and investors' integration of environmental dimensions into decision-making and disclosures.
The approach includes using climate scenarios and environmental data to forecast potential impacts on financial portfolios and operations, addressing both transition and physical risks from climate change. This aids businesses and investors in reporting under the EU’s Sustainable Finance Disclosure Regulation (SFDR) and Taxonomy Regulation frameworks that require scenario-based resilience assessment.
In essence, the handbook by ISPRA provides a data-driven, standardized, and scientifically supported framework for businesses and investors to evaluate, disclose, and manage environmental sustainability risks and impacts. It combines harmonized environmental statistics, risk assessment methodologies, reporting protocols (like GHG emissions), and sustainability indicators, all aligned with the new European sustainable finance regulatory framework mandating greater transparency and environmental accountability.
The handbook, prepared by researchers from ISPRA, outlines an ambitious project of double materiality analysis, focusing on the impact of business activity on sustainability, as well as the sustainability risks on business life and the choices of investors. The 280-page document can be downloaded from the Ispra website. It includes detailed reconstructions and explanations of norms and procedures, providing technical-scientific support for reporting on environmental sustainability by businesses and investors.
The sectors included in the taxonomy, as illustrated in the handbook, are energy, transport, water and waste, buildings, agriculture and forests, ICT, industry and materials. The handbook provides tools for businesses, investors, and Supervisory Authorities to generate immediate utility in relation to the obligations provided by the European regulatory framework on sustainable finance. It is intended for businesses and those responsible for evaluating the application of procedures.
[1] Higher Institute for Environmental Protection and Research (ISPRA), (2021). The Environmental Challenge for Sustainable Finance. Retrieved from ISPRA website
[2] European Commission, (2018). Action Plan on Financing Sustainable Growth. Retrieved from European Commission website
- The handbook by ISPRA, a comprehensive resource on the environmental challenge in sustainable finance, encourages financial institutions and businesses to use harmonized environmental and financial databases, such as those from the EU Joint Research Centre and ISPRA, to facilitate comparability across portfolios and sectors.
- Following the European Commission's Action Plan on Financing Sustainable Growth, ISPRA's handbook aligns with major protocols like the GHG Protocol, and provides tools for various sectors, including energy, transport, water and waste, buildings, agriculture and forests, ICT, industry and materials, to accommodate the European regulatory framework on sustainable finance, emphasizing transparency, accuracy, and accountability in environmental reporting.
