Sustainable finance aims at integrating Environmental, Social or Governance (ESG) criteria into financial services, and at supporting sustainable economic growth. Moreover, it aims at increasing financial actors’ awareness about the need to mitigate ESG risks via an appropriate management, considering in particular the longer-term nature of such risks and the uncertainty on their valuation and pricing.

What is sustainable finance in the European Union?

In December 2015, the Paris Agreement was signed, after the signing of the United Nations 2030 Agenda for Sustainable Development earlier in 2015, which created the Sustainable Development Goals.

As a response, in March 2018, the European Commission published its Action plan on Financing Sustainable Growth, setting an EU strategy on sustainable finance and a roadmap for future work across the financial system.

In its turn, the European Banking Authority (EBA) prepared its own work plan and identified key priorities. These include considerations on how ESG can be incorporated into the regulatory and supervisory framework of EU credit institutions. The EBA also has an important role in monitoring  market practices related to sustainability, and engaging with relevant stakeholders and the industry.

On 11 December 2019, the Commission presented the European green deal, a growth strategy aiming to make Europe the first climate-neutral continent by 2050.

In September 2020, the Commission presented its 2030 climate target plan, with an increased emissions reduction target of 55% by 2030 as compared to 1990. The EU is already providing impetus to help attract the required investments with the European Fund for Strategic Investments and other initiatives. However, the scale of the investment challenge is beyond the capacity of the public sector alone. The financial sector has a key role to
play in reaching those goals. To this end, the Commission has since 2018 been developing a comprehensive policy agenda on sustainable finance, comprising the
action plan on financing sustainable growth and the development of a renewed sustainable finance strategy in the framework of the European green deal and the new strategy for financing the transition to a sustainable economy. The Commission is also coordinating international efforts through its International platform on sustainable finance.

What is the Taxonomy Regulation?

On 22 June 2020, the Taxonomy Regulation was published in the Official Journal of the European Union and entered into force on 12 July 2020. The Taxonomy Regulation establishes the basis for the EU taxonomy by setting out overarching conditions (i.e., sustainable contribution to environmental objectives, no significant harming, minimum social and governance safeguards, and technical screening criteria) that an economic activity has to meet in order to qualify as environmentally sustainable.

On 10 December 2021 the European Commission Delegated Act of 6 July 2021 supplementing Article 8 of the Taxonomy Regulation was published in the Official Journal. This regulation specifies the content, methodology and presentation of information to be disclosed by financial and non-financial undertakings concerning the proportion of environmentally sustainable economic activities in their business, investments or lending activities. The EBA together with other ESAs provided the European Commission with their advice towards the development of this regulation.

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