The new European regulations underscore the financial sector's commitment to eco-friendly investments
Europe Moves Forward with Renewed Sustainable Finance Strategy
The European Union (EU) is pressing ahead with its commitment to sustainable finance, with the implementation and refinement of the Renewed Sustainable Finance Strategy now underway. Announced on June 13, 2023, the strategy aims to strengthen the usability and consistency of the sustainable finance framework, supporting a transition towards a sustainable and inclusive financial system, economy, and society [1].
Following the European Commission's sustainable finance package, the Commission is actively supporting implementation to ensure that tools and disclosures work in practice, providing regulatory clarity and stability for investors [1]. The strategy prioritizes facilitating transition finance to accelerate sustainable investments aligned with the European Green Deal, Paris Agreement, and UN Sustainable Development Goals [1].
While no single start date is highlighted for the entire Renewed Sustainable Finance Strategy, the June 2023 package is considered the Commission’s last major sustainable finance package under its current mandate, indicating that implementation is underway, and primary legislative measures are in effect or forthcoming [1]. Related regulatory instruments, such as the Sustainable Finance Disclosure Regulation (SFDR) and the EU Green Bond Standard, are already in different stages of enforcement, with the Green Bond Standard expected to become mandatory for public issuers in 2026 [4].
Other significant steps, including reports and roadmaps related to EU financial market operations, continue to evolve into 2025, supporting the overall regulatory framework adaptation [3]. The Commission has established expert groups and strategies relating to sustainable finance as part of the Capital Markets Union (CMU) project, embedding sustainability in the financial regulation agenda [2].
The draft delegated directive, published by the European Commission in June, aims to clarify financial institutions' duties to provide clear advice on social and environmental risks and opportunities. The proposed legislation is expected to start applying in the second half of 2021, affecting asset management funds, investment firms, insurers, and insurance distributors [5].
The UK Government has indicated that it does not intend to depart from the EU framework post-Brexit, meaning the UK is obliged to transpose EU directives into UK law until the end of the transition period on 31 December 2020 [6]. However, the proposed delegated regulation will not be automatically onshored at the end of the transition period.
The European Green Deal, adopted in December 2019, significantly increases the EU's climate change action and environmental policy ambitions [6]. The primary objectives of the draft legislation are to shift capital flows away from negative social and environmental activities, better assess and manage financial risks, and direct finance towards activities with long-term benefits for society [5].
The ESG movement has been making significant strides within various sectors, including the hedge funds industry, and is spreading globally at an unprecedented rate [6]. Funds focusing on socially responsible investment have become a beacon of hope during market turmoil, showcasing their resilience and positive impact on the environment and society [2]. The consultation process for the Renewed Sustainable Finance Strategy closed on 6 July 2020, marking a pivotal step in the EU's sustainable finance journey.
References:
[1] European Commission. (2023). Renewed Sustainable Finance Strategy. Retrieved from https://ec.europa.eu/info/publications/renewed-sustainable-finance-strategy_en
[2] European Commission. (2023). Capital Markets Union. Retrieved from https://ec.europa.eu/info/business-economy-euro/banking-and-finance/capital-markets-union_en
[3] European Commission. (2020). Action Plan on Financing Sustainable Growth: First progress report. Retrieved from https://ec.europa.eu/info/publications/action-plan-financing-sustainable-growth-first-progress-report_en
[4] European Commission. (2023). EU Green Bond Standard. Retrieved from https://ec.europa.eu/info/publications/eu-green-bond-standard_en
[5] European Commission. (2020). Delegated acts on the Sustainable Finance Disclosure Regulation. Retrieved from https://ec.europa.eu/info/publications/delegated-acts-sustainable-finance-disclosure-regulation_en
[6] European Commission. (2020). Consultation on the Renewed Sustainable Finance Strategy. Retrieved from https://ec.europa.eu/info/publications/consultation-renewed-sustainable-finance-strategy_en
- The Commission is actively supporting the implementation of the Renewed Sustainable Finance Strategy to ensure regulatory clarity and stability for investors, positioning private equity and venture capital as potential avenues for transition finance, aligned with the European Green Deal, Paris Agreement, and UN Sustainable Development Goals.
- In line with the European Green Deal, the draft delegated directive aims to clarify financial institutions' duties to provide clear advice on social and environmental risks and opportunities, potentially influencing investing decisions in science, environmental-science, and climate-change sectors.
- The UK Government, following its departure from the EU, has expressed its intention to remain aligned with EU sustainable finance regulations, but the proposed delegated regulation will not be automatically onshored at the end of the transition period, leaving the impact on business unsure.
- The ESG movement, gaining momentum within various sectors, such as the hedge funds industry, has shown resilience and positive impact during market turmoil, highlighting the potential of sustainable finance to drive business towards long-term benefits for society and the environment.
