Financing Europe’s Transition to a Low-Carbon Economy: The Role of Sustainable Finance

Abstract

The European Union’s sustainable finance policies and actions reflect the emergence of an environmental conscience in the field of financial regulation. Sustainable finance regulations are designed to force financial institutions and businesses to measure their economic activity against pre-established criteria and benchmarks, and to communicate that information clearly, truthfully and effectively with stakeholders and investors. These regulations represent absolute innovations in the field of corporate reporting. They are necessary to provide sufficient levels of standardisation of corporate practices to reduce greenwashing and ensure regulatory harmonisation among the member states. The European Commission’s expertise in regulating financial markets dates back to the Union’s founding. At the same time, sustainability has long been central to the Union project. More developed and integrated capital markets are crucial to foster innovation and unlock adequate levels of investment to accelerate the transition to a low carbon, resources efficient and sustainable economy. However, several shortcomings exist in the current sustainable finance framework that could compromise reaching carbon neutrality by 2050. A related risk is the excessive financialisation of sustainability. Whether sustainable finance regulations will contribute to achieve emissions reductions to mitigate climate change in a timely fashion and move Europe towards a truly sustainable economy remains to be seen.