Brussels – The European Commission has unveiled proposals to harness the financial sector in the fight against climate change, with a view to plugging an investment gap of 180 billion euros (211 billion dollars) required annually to meet EU targets.

Under the Paris Agreement on climate change, the European Union has committed by 2030 to cut greenhouse gases by 40 per cent, compared to 1990 levels.

Common standards for 'green' investments

"When it comes to climate change, we are running out of time," warned commission Vice President Valdis Dombrovskis.

"Public money alone would not be enough, so we need to mobilize private capital markets in favour of our planet," he added.

The proposals – which would affect the financial sector across the board – would set common standards for 'green' investments, compel financial institutions to factor environmental risks into their decision-making and create low-carbon benchmarks.

Under the planned measures, investment products can only be marketed as environmentally sustainable if they contribute to EU goals such as addressing climate change, protecting water resources, preventing pollution or cutting down on waste.

The aim is to channel more investments into sustainable activities. Financial companies managing investments will have to inform their clients how their decisions are impacting the environment.

Proposal requires EU governments approval

Social concerns – such as working conditions – and governance issues such as diversity, a company's commitment to paying fair taxes and the absence of corruption – should also be factored in.

The commission also wants to tackle so-called greenwashing, the practice of marketing financial products as being sustainable when in fact they don't meet basic environmental standards.

Most of the proposal, which follows consultations with industry and experts, requires the approval of EU governments and lawmakers.

EU finance ministers are broadly in favour, according to Dombrovskis, but some of the details could raise concerns from EU capitals.

The aim is for the rules to be adopted before EU elections in May 2019.

The commission cites "compelling" reasons for "putting the financial sector at the service of our planet," noting that climate change is causing major economic losses, with insurance companies paying out a record 110 billion euros for natural catastrophes last year.

"If we wake up too late to the reality of global warming, many of today's investments could end up being redundant," the EU's executive added.