... these rules set the fundamental transparency requirements at investee, financial institution and financial product level, and act as reference points for other legislation designed to meet the goals of the EU Green Deal.
The EU has already taken important actions for private finance to support the transition to a greener economy, and it cannot waste this one chance to finish the work. The sustainable finance legislative framework could help boost the European economy going forward – it is the last stretch before reaping the benefits of the efforts made so far.
In 2018, as part of the European Green Deal, the European Commission presented an EU action plan on sustainable finance. The aim of the plan was to support the green transition by redirecting capital towards sustainable investment, while at the same time managing the financial consequences of climate change.
According to some analysts, the results of the latest EU elections could weaken, and perhaps even jeopardise, the Green Deal, which would result in an inefficient sustainable finance legislative framework. The Green Deal is also facing corporate pressure due to the necessary effort to comply with the new rules. On the one hand, it asks larger companies to carry out due diligence on their value chains and report on their sustainability impacts, risk and opportunities, as well as establish transition plans for their business model in order to align with the objective of limiting global warming to 1.5°C. On the other hand, gradual development of the framework has led to legislative inconsistencies, leaving some businesses uncertain regarding how best to comply with the rules.
Despite this pressure, European citizens still consider the introduction of environmental legislation at the EU level as being crucial, while over 100 companies have issued a joint letter supporting the Green Deal in the wake of the elections.
The reality is that the EU has already taken important actions for private finance to support the transition to a greener economy, and it cannot waste this one chance to finish the work. The sustainable finance legislative framework could help boost the European economy going forward – it is the last stretch before reaping the benefits of the efforts made so far.
A complex framework
The EU sustainable finance regulatory framework is complex, and it is therefore important to understand how the different parts of this framework connect. Simply put, there are three pillars that form the backbone of the sustainable finance regulatory framework: the EU Taxonomy, the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR).
Criteria outlined in the EU Taxonomy, for instance, provide information that is used to create labels and schemes that boost sustainable investments, such as the EU Green Bond Standard. Likewise, both the EU Taxonomy and SFDR help increase transparency requirements for retail investors. The new rules make the sustainability characteristics of products clearer for investors and adaptations to the Markets in Financial Instruments Directive (MiFID II) enables them to express their sustainability-related preferences based on those characteristics....
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