The European Commission’s Sustainable Finance Action Plan and Other International Initiatives

Posted: 21 Feb 2024 Last revised: 29 Feb 2024

See all articles by Arthur van den Hurk

Arthur van den Hurk

Radboud University Nijmegen, Institute of Financial Law ; EUSFIL Jean Monnet Centre of Excellence

Ingrid van der Klooster

Erasmus University Rotterdam (EUR) - Erasmus School of Law

Date Written: February 21, 2024

Abstract

Since the publication of the European Commission’s 2018 Action Plan and – similarly – the 1st edition of this book, significant progress has been made on the execution of the Action Plan and putting into effect the actions identified in the Plan. The actions respond to five broad strategies that can be defined as ‘public incentives’, ‘standardisation’, ‘disclosure’, ‘corporate governance’ and ‘financial regulation’. The first strategy consists of fostering investments through financial and technical support for sustainable infrastructure and other projects. The second strategy includes the establishment of an EU taxonomy of sustainable activities which should help shifting capital flows towards them. It also includes the setting of standards and labels for green financial products, which should enhance the trust in the market of these products and ease investors’ access to them. The third strategy covers both corporate disclosure and third party information and assessments. The fourth strategy combines sustainable corporate governance with attenuating short-termism in capital markets, and assumes that boards should develop their own sustainability strategies and act in the company’s long-term interest. The fifth strategy implies at least three types of regulatory reform. Sectoral requirements have been amended in the sense that investment firms and insurance distributors should consider sustainability issues when offering financial advice. Second, fiduciary duties of asset managers and institutional investors have been clarified so as to include ESG factors in the investment processes. Third, ESG is being incorporated in prudential requirements of financial institutions so that they channel their investments towards a more sustainable economy, while reducing the risks deriving from unsustainable economic development. Building on the fundamentals of the 2018 Sustainable Finance Action Plan, the European Commission has adopted a Renewed Sustainable Finance Strategy in 2021. According to the European Commission, since 2018, its understanding of what is needed to meet the sustainability goals has evolved, and the global context has changed. Accordingly, the European Commission is taking significant steps in the further development of a European Sustainable Finance framework, building on the foundations of the 2018 Action Plan. These foundations are formed by three building blocks: (1) the EU taxonomy of sustainable activities, a disclosure framework for non-financial and financial companies, and (3) investment tools, including benchmarks, standards and labels. The Renewed Sustainable Finance Strategy identifies four areas in which additional action is required: (1) Financing the transition of the real economy towards sustainability; (2) Towards a more inclusive sustainable finance framework; (3) improving the financial sector’s resilience and contribution to sustainability: the double materiality perspective; and (4) fostering global ambition. Within these four areas, the European Commission has formulated six actions, divided into a number of specific action points, to achieve the sustainability objectives. The related actions are discussed in the second part of this chapter. These actions generally require regulation and/or supervision often at EU level, but private incentives and cultural developments towards an environmentally sustainable economic system will also be important in furthering the success of the Action Plan and the Renewed Sustainable Finance Strategy.

Keywords: Sustainable Finance, Sustainable Finance Action Plan, Sustainable Finance Strategy, Greend Deal, ESG

JEL Classification: D62, F18, F21, F36, F64, G15, G18, G20, G21, G22, G23, G24, G28, G32, G38, K20, K22, K23, K30, K32

Suggested Citation

Hurk, Arthur van den and van der Klooster, Ingrid, The European Commission’s Sustainable Finance Action Plan and Other International Initiatives (February 21, 2024). European Banking Institute Working Paper Series no. 166, Available at SSRN: https://ssrn.com/abstract=4734073 or http://dx.doi.org/10.2139/ssrn.4734073

Arthur van den Hurk (Contact Author)

Radboud University Nijmegen, Institute of Financial Law ( email )

Nijmegen
Netherlands

HOME PAGE: http://https://www.ru.nl/ifl/

EUSFIL Jean Monnet Centre of Excellence ( email )

Italy

Ingrid Van der Klooster

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

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