Financing the Transition to Sustainability: SMART Reform Proposals

92 Pages Posted: 3 Aug 2020 Last revised: 2 Feb 2022

See all articles by Jay Cullen

Jay Cullen

University of York; University of Oslo

Jukka Mähönen

University of Oslo - Faculty of Law; University of Helsinki - Faculty of Law

Heidi Rapp Nilsen

Norwegian University of Science and Technology

Date Written: May 6, 2020


Financial markets are fundamental to a successful transition to sustainable market activity. Addressing unsustainable financial practices is vital to realizing the EU’s commitments on sustainability, as expressed for instance in the European Green Deal of December 2019. Yet, investments in unsustainable projects – routinely funded by large EU banks – have not been addressed sufficiently by EU financial regulators, in spite of the introduction of the EU Sustainable Finance Initiative (SFI) in 2018. The SFI lacks a systematic integration of sustainability factors in the actions proposed, limiting focus on selected environmental issues, especially climate change. It also relies too much on the existing incentive structures for private actors in financial markets. Such reliance is unlikely to deliver sufficient sustainable investments. On the other hand, the EU has made considerable progress regarding to prevent ‘greenwashing’ of financial products, and the development of consultative processes and expert groups speaks of a genuine commitment to deliver, which may be realized in the present EU Parliament and Commission. However, the legitimacy and effectiveness of this EU action needs to be assured, and there is a danger the SFI will not achieve its goals, due to limitations in the proposals under it.

In this Report the SMART Project presents its analysis and reform proposals on regulation governing the funding of investments both in the EU and between the EU and third countries. The regulation discussed concentrates firstly on the banking system, including central banks and private banks but also private and public institutional investors, as much of the short-term and narrow pressure for maximization of returns to investors comes from the investment supply chains of financial markets and institutional investors. The SMART Project also proposes revision of the European Central Bank mandate and operations, guidelines for bank risk assessment, and regulation of banks. Secondly, the SMART Project proposes broadening and strengthening the SFI with proposals of amendments in the recent Taxonomy, Disclosure and Benchmarks Regulations to cover all economic activities and financial instruments and all market actors, both public and private, obliging them take into consideration sustainability in their investment decisions as well as benchmarks provided by index and benchmarks providers. In the final part of the Report the increased focus on foreign investments outside the EU is discussed.

Keywords: EU Sustainable Finance, EU Green Deal, sustainability, planetary boundaries, central banks, banks, finance, due diligence, foreign investments

Suggested Citation

Cullen, Jay and Mähönen, Jukka T and Nilsen, Heidi Rapp, Financing the Transition to Sustainability: SMART Reform Proposals (May 6, 2020). University of Oslo Faculty of Law Research Paper No. 2020-10, Nordic & European Company Law Working Paper No. 20-09, Available at SSRN: or

Jay Cullen (Contact Author)

University of York ( email )

University of York
York, YO10 5DD
United Kingdom

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317

Jukka T Mähönen

University of Oslo - Faculty of Law ( email )

Karl Johansgt 47
N-0162, Oslo
+4722859534 (Phone)


University of Helsinki - Faculty of Law ( email )

Porthania 5th Floor
P.O. Box 4
Helsinki, FIN-0001 4

Heidi Rapp Nilsen

Norwegian University of Science and Technology ( email )

Trondheim, 7491

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