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    Plan

    Plan détaillé Texte intégral I. Introduction – The European Green Deal as the EU’s  Environmental and Climate Strategy II. The Commission’s Strategy for Financing the Transition to a Sustainable Economy – Creating the EU’s Sustainable Finance Framework III. Review of the European Sustainable Finance Legislation IV. How Can the Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition? V. Challenges for the EU sustainable finance framework VI. Conclusions Notes de bas de page Auteur

    The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework

    Ce livre est recensé par

    Précédent Suivant
    Table des matières

    Chapter XII

    How Can Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition?

    Marcin Krzemień

    p. 225-243

    Résumé

    This chapter considers the recently enacted European Union regulations in the field of sustainable finance. Key secondary pieces of sustainable finance legislation have been reviewed. They have been discussed in the context of the EU’s environmental strategy. The chapter discusses the architecture of the European sustainable finance framework and its potential impact on the realisation of the European Green Deal agenda.

    Texte intégral I. Introduction – The European Green Deal as the EU’s  Environmental and Climate Strategy II. The Commission’s Strategy for Financing the Transition to a Sustainable Economy – Creating the EU’s Sustainable Finance Framework III. Review of the European Sustainable Finance Legislation A. Introduction B. The Taxonomy Regulation C. Reporting Obligations D. Prudential Obligations for the Financial Sector E. Sustainable Financial Products F. ESG-Related Fiduciary Duties G. The European Sustainable Finance Legislation – a Summary and Prospects for the Future IV. How Can the Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition? V. Challenges for the EU sustainable finance framework A. A test for the taxonomical approach B. The wider issue of transparency C. Greenwashing – A Looming Risk Made More Prominent VI. Conclusions Notes de bas de page Auteur

    Texte intégral

    I. Introduction – The European Green Deal as the EU’s  Environmental and Climate Strategy

    1Providing finances for the European Union’s climate transition has become a key issue for the European financial system. On a strategic level, the key document concerning the EU’s environmental and climate policy is of course the 2019 European Green Deal1 (EGD). The EGD, in the form of a Commission communication, has set out ambitious goals for the transformation of the European economy into a more sustainable model and, chiefly – one of climate neutrality. Apart from eight environmental goals listed in the EGD, it also formulates three indirect or ‘lever’ goals; these being 1) mobilising research and fostering innovation; 2) a just transition and, last but not least; 3) financing this transformation.2

    2This reflects a broader context of the EU’s international obligations, most importantly – the Paris Agreement.3 While a detailed analysis of the EGD goes beyond the scope of this chapter, it should be said that commentators have already underlined its revolutionary nature. The EGD assumes fostering climate neutrality not only through voluntary schemes, technical support, and financial incentives, but also through ‘hard’ regulation, e.g. mandatory product rules.4 Researchers have additionally pointed to the complexity of the document, incorporating the issues of sustainable development across various EU policies,5 as well as its multidimensional nature.6 As indicated by Jendrośka et al., based on the EGD, the Commission issues proposals for regulatory instruments,7 which have, as their goal, the implementation of sustainable production, consumption and resource extraction in the EU. A prime example of such instrument is European Climate Law,8 which formulates the goal of greenhouse gas emission reduction (already set out in the EGD) at the level of binding secondary EU legislation, and develops monitoring and review systems aimed at facilitating the achievement thereof.9 As such, the EGD (and various legislative initiatives resulting therefrom) can be perceived as an attempt at operationalising the principle of environmental integration, relying on sustainable development, enshrined in Article 11 of the Treaty on the Functioning of the European Union10 (TFEU).

    3On the other hand, critics of the EGD have argued that it lacks the cohesive vision of a post-carbon European economy, and effective means of execution, while agreeing with its general concept.11 The realism of the various environmental goals it postulates (primarily the goal of greenhouse gas emission reduction) was also called into question.12 Finally, commentators have correctly pointed out that reaching the EGD’s goals will require the EU and Member States to dedicate significant political and financial resources to that end.13

    4Financing the EU’s sustainable transformation is a crucial issue. By the Commission’s own calculations, the temporary goal of reducing greenhouse gas emissions in the EU by 55%, by 2030 (as compared to 1990), will require an additional €350 billion in annual investment in energy systems alone.14 While significant public funds are being devoted toward that goal,15 these amounts will need to be raised primarily from private sources. Therefore, end-investors need to be provided with adequate tools in order for them to be able to invest in sustainable solutions in a credible manner. I.e. if an issuer declares that the proceeds of a given financial instrument shall be devoted to sustainability considerations, the end-investor should be able to review its performance against declared results. It may also be beneficial if the issuer’s conduct – being the effect it has on sustainability factors through the instrument – were supervised by financial regulators, in particular if potential sanctions were available in case the conduct was not compliant with earlier declarations. All of the above would be desirable in order to foster investor demand for sustainable financial products. The rationale here being that investors would be more willing to invest in a sustainability-related financial instrument were they able to assess the issuer’s declaration concerning its sustainability-related performance more credibly. Hence the importance of the efficacy of sustainability reporting and sustainability due diligence rules,16 as well as corresponding sanctions and enforcement rules.

    II. The Commission’s Strategy for Financing the Transition to a Sustainable Economy – Creating the EU’s Sustainable Finance Framework

    5Broadly speaking, these issues are behind the Commission’s 2021 Strategy for Financing the Transition to a Sustainable Economy – the key strategic document issued by the Commission in the area of sustainable finance. Just as the EGD sets out various strategic goals for the EU in the area of environment and climate, the Strategy… considers how to finance them. It is broadly anchored around three main pillars17 – 1) Taxonomy, the European system of classification of environmentally sustainable activities; 2) reporting duties for selected corporates in the sphere of sustainability; and 3) tools for investors allowing them to invest in sustainable financial instruments,18 following the above described logic. Additionally, the Strategy… strives to improve the resilience of the financial sector to environmental and climate risks, and encourages it to contribute to sustainability transformation.19

    6Various European legislative initiatives in the area of sustainable finance, described in more detail below, have resulted from the Strategy… The general logic of the sustainable finance framework described therein is the following:

    1. The Taxonomy should provide issuers, investors and regulators with clear-cut answers as to what types of economic activities can be considered environmentally sustainable under EU law and, to that extent, it will be utilised as a ‘lexicon’ in secondary EU legislation;
    2. Information on the impact that various corporates have on the environment should be disseminated by them to market participants more effectively – through mandatory reporting rules (also utilising the Taxonomy);
    3. Investors will be given more tools allowing them to invest in sustainable financial instruments20 within the framework of the European financial system; and
    4. The European economy, and the financial sector in particular, should be made more resilient to new challenges resulting from environmental and climate issues, in particular to environmental and climate risks (which carry systemic considerations).

    7Already at this stage it must be said that the Strategy… will have far-reaching consequences for European financial markets. While it is still too early to assess its actual impact, on a programme level, it creates a framework for a sustainable European financial system. Based on this document, new regulations (described below), on one the hand facilitating making sustainable investments and, on the other, requiring various entities in the financial markets to consider sustainability factors and risks in their dealings, have been enacted. At its outset, the Strategy… aims to solve key challenges occurring in the sustainable finance segment – as correctly indicated by commentators: the crystallisation of the issuers’ sustainability obligations (enshrined in various financial instruments), and the monitoring thereof.21 It should also be pondered what impact the Strategy… may have in general on the EU’s economy, given its rationale – mobilising private capital for the EU’s climate transformation, and requiring the financial industry to devote larger resources to considering environmental and climate risks.

    III. Review of the European Sustainable Finance Legislation

    A. Introduction

    8Having set out the strategic context for the EU’s legislative agenda in the area of sustainable finance, a brief review of legislation in that area should be provided. It can be generally categorised into five broad groups, which will be discussed briefly below.

    B. The Taxonomy Regulation

    9The first foundation of the European sustainable finance framework, as described in the Strategy…, is the Taxonomy.22 The Taxonomy is a common classification system for economic activities substantially contributing to the EU’s environmental objectives, using science-based criteria, as described in the Taxonomy Regulation and the delegated acts thereto. It aims to define which selected types of economic activities are ‘environmentally sustainable’, which means that they should, first and foremost, contribute significantly to one of the EU’s environmental goals.23 These goals have been described in Articles 9–16 of the Taxonomy Regulation, and include: (i) climate change mitigation, (ii) climate change adaptation, (iii) sustainable use and protection of water and marine resources, (iv) transition to a circular economy, (v) pollution and prevention control, and (vi) protection and restoration of biodiversity and ecosystems.

    10Apart from that requirement, an environmentally sustainable activity according to the Taxonomy shall also meet several other criteria: it cannot cause significant harm to any of the EU’s environmental goals already described in the above paragraph, it must comply with certain minimum safeguards assuring that it does not cause harm to social and governance factors, and finally, it must also comply with the technical screening criteria defined in delegated acts to the Taxonomy Regulation.24 This last requirement is crucial in practice – these screening criteria are in fact detailed benchmarks, set out per specific type of economic activity, indicating what conditions must be met in order for a given activity type to ‘significantly contribute’ to one of the EU’s environmental goals and ‘cause no significant harm’ to any of them.

    11Much has already been written about the Taxonomy Regulation,25 and it is not the aim of this chapter to describe it in much greater detail. I would rather concentrate on the key conceptual and strategic considerations associated with that instrument.

    12Firstly, it must be said that the Taxonomy itself is a strategic tool. This is visible in the fact that the Taxonomy defines which types of economic activities can be described as environmentally sustainable with reference to the EU’s environmental policy objectives (the objectives described in Article 9 of the Taxonomy Regulation being generally consistent with the environmental policy goals described in the EGD).

    13Secondly, the Taxonomy aims not to constitute a labelling system in itself, but rather a standard to be employed by other secondary legislation. Already, references to the Taxonomy are being prominently featured in various pieces of secondary EU legislation. E.g., environmental reporting is now generally being benchmarked around Taxonomy. Similarly, European financial regulators are starting to require that supervised entities consider what parts of their portfolios are Taxonomy-aligned.26 The European green bond standard will most likely be Taxonomy-aligned as well.27 An interesting development in this regard is the fact that requirements for alignment with Taxonomy are being featured even in less expected places, outside the core architecture of the European sustainable finance framework; e.g., in order for Member States to be eligible for the receipt of funding under the Recovery and Resilience Facility, they must have demonstrated that these funds will not be dedicated to activities causing significant harm to any of the environmental objectives described in the Taxonomy Regulation.28

    14Thirdly, owing to the fact of it being a standard, the Taxonomy can be readily employed by public and private institutions outside of the context of other secondary legislation. Apart from encouraging private entities to invest in sustainability considerations, the European Union will also dedicate significant public resources in order to foster its transformation pursuant to the EGD. In this context an important role will be played by the European Investment Bank (EIB), which shall become the ‘European Climate Bank’.29 The EIB has already published strategic documents in which it outlines how it aims to fulfil this role, with reference to aligning its portfolio with the Taxonomy.30 Private lenders on the other hand may also be willing to utilise the taxonomy in their lending and investment practices as a benchmark – in order to comply with prudential requirements or to commercialise an instrument as environmentally sustainable.

    15For all of the reasons described above, the Taxonomy will play a key role in funding the EU’s environmental and climate transition (and the success or failure thereof). We should expect that, with time, it will feature more and more prominently in European secondary legislation, as a benchmark through which the environmental conduct of corporations will be assessed. A brief discussion of the Taxonomy’s potential impact and corresponding challenges has been included in part V of this chapter.

    C. Reporting Obligations

    16As indicated in the Strategy…, new reporting obligations accompany the Taxonomy. The general goal of corporate reporting is to reduce information asymmetries between the investor and the company that they wish to finance.31 Quite common in literature is a view according to which the impact companies have on sustainability factors has been historically underappreciated.32 The concept of non-financial reporting is not particularly innovative. A selected group of corporates has been subject to non-financial reporting obligations under the so-called NFRD directive33 since 2018, with limited effect, mostly due to the reported data not being easily comparable.34 These reporting duties have now been Taxonomy-aligned, which means that, broadly speaking, corporate entities subject to NFRD reporting must now report on their alignment with Taxonomy-eligible activities (for financial institutions this obligation, generally speaking, concerns their portfolios, and is referred to as the ‘green asset ratio’35). The aim of this change has clearly been to improve the comparability and readability of the reported data.

    17This trend has been continued in the recently enacted CSRD Directive. The subset of corporate entities obliged to report on sustainability-related issues will increase36 (with the launch of obligations being staggered between 2025 and 2029 depending on the company type). The scope of the reported information will also increase and cover strategic sustainability considerations while the manner of reporting shall be standardised.37 The information reported will be subject to mandatory audit. The responsibility of board members will in turn be extended to also cover issues of sustainability reporting.38 The intention shown in the CSRD Directive is to incorporate sustainability issues into general corporate reporting and further improve the comparability of reports. Already at this stage it must be pointed out that such new obligations will definitely require European companies to launch the process of collecting relevant sustainability data.

    18The above duties are accompanied by additional requirements for financial institutions. Selected39 entities supervised within the Capital Requirements Regulation (CRR) regime have been asked to report on sustainability risks (including physical risks and transition risks in relation to the environment) with the recently enacted implementation of technical standards, setting out detailed rules for reporting (quantitative) exposures to said risks. (The first disclosures based on Article 449a CRR will be made in 2023.) The Sustainable Finance Disclosure Regulation (SFDR) in turn requires the so-called ‘financial market participants’ (generally speaking a wide group of companies having investment activities at their core) to disclose: (i) how they consider sustainability risks in their investment processes, and (ii) whether they consider the principal adverse impacts of their decisions on sustainability factors, and the requirement to include information on how they consider sustainability risks in pre-contractual disclosures.40 While the impact of the SFDR rules has so far been limited, they have recently been Taxonomy-aligned.41

    D. Prudential Obligations for the Financial Sector

    19Furthermore, new prudential regulations have been put in place essentially asking financial institutions to consider the potential impact of sustainability-related risks on their performance, and to include sustainability considerations within their strategies and operations. To a varying extent these obligations cover entities acting in the banking, insurance and capital markets sectors.42 While a detailed analysis of these rules goes beyond the scope of this chapter, it has to be said that there is increasing regulatory pressure within the EU for supervised financial institutions to take into consideration environmental and climate risks in particular, in their operations. One of the reasons given for the singling out of sustainability-related risks within the prudential supervision of the financial sector, is their historic underappreciation by supervised entities. European regulators currently consider sustainability-related risks as specific types of prudential risks that have not been properly measured or taken into consideration in the past, with environmental and climate risks, in particular, carrying systemic considerations. Whereas in the post-2007 financial crisis world, the measurement of systemic risks in economy is a key function of financial supervision.43 Financial institutions are being asked to include sustainability-related risks within their decision-making processes, strategies and organisational structures, with the risk function being of key importance. They are being increasingly asked to identify, measure and manage sustainability-related risks, in particular concerning the environment and climate, whilst taking into account the long-term view and different scenarios.44

    E. Sustainable Financial Products

    20Sustainable financial products are another key element of the European sustainable finance framework.45 They are tools for investors, allowing them to pool their funding into sustainability considerations and, by extension – to fund the EU’s environmental and climate agenda. Owing to this fact, issuing sustainable financial products is no longer an entirely voluntary endeavour under EU law. An issuer has freedom to decide whether it will issue an environmentally sustainable financial instrument or not. However, if it chooses to do so (and chooses one of the European sustainable financial product frameworks), it will have to play by the EU’s rules. Article 4 of the Taxonomy Regulation lays out a general rule, according to which products marketed as ‘environmentally sustainable’ by the EU or Member States should be Taxonomy-aligned. Further, detailed frameworks for sustainable financial products are being introduced. The SFDR regulation has introduced one such framework, by creating two new groups of financial products carrying sustainability considerations – products promoting environmental and social characteristics, and products having sustainable investment as their objective. While the impact on this legislative solution on the market has so far been limited, detailed product-level reporting rules have been introduced in 2023.46 Last but not least, the European green bond proposal, constituting a key part of the Strategy… will potentially have an impact on the market – with the general idea being to develop the European green bond Taxonomy-aligned standard, requiring its issuances to be certified by third-party verifiers supervised by the European Securities and Markets Authority (ESMA), and requiring the issuer to report on the actual impact of the issue on environmental factors (and to have that report certified as well).47 Ultimately, all of these changes are being introduced in order to allow investors the more credible assessment of various sustainable financial products based on verifiable criteria, and their monitoring with relative ease. These new product ‘tools’ are being accompanied by financial product distribution rules that essentially ask various distributors of (mainly investment) financial products to investigate and consider their clients’ sustainability preferences, to review the performance of sustainability-oriented products, and to manage sustainability-related conflicts of interests.

    F. ESG-Related Fiduciary Duties

    21Finally, looming on the horizon are the fiduciary duties relating to the impact of corporates on ESG factors – in other words requiring companies to consider the inside-out view on said factors. Already in the insurance sector the new Article 275a of Delegated Regulation 2015/3548 asks insurance companies to consider their impact on ESG factors in the process of applying the prudent investor rule. More generally, a proposal for the so-called CSDD Directive is being considered, which would, in essence, ask selected large corporates to consider their impact on sustainability factors, as well as having adequate control and complaint procedures in place to that end.49 This is a new development, accompanying developing reporting duties under the CSRD Directive, and especially important for companies active in the financial sector, where the hitherto focus has been risk-based, and thus focused on the outside-in perspective (the impact of sustainability factors and risks on the financial institution). In the context of financial markets, this development must be closely observed – the introduction of specific sustainability-related fiduciary duties for corporates may have an impact on the pricing of their activities, and thus could render the creation of underlying financial instruments easier.

    G. The European Sustainable Finance Legislation – a Summary and Prospects for the Future

    22The above review is, of course, by no means exhaustive, and further legislative actions are being considered by the Commission, as outlined in the Strategy… As already pointed out, all of the regulatory strategies described above interplay with one another with their underlying goals being: (i) the funding of the EU’s environmental and climate transformation (primarily through the facilitation of private sustainable investments), (ii) collecting and sharing with various stakeholders significant information relating to the environmental and climate conduct of corporates, and (iii) building the financial sector’s resilience to climate risks. The Taxonomy will be employed extensively in more and more secondary instruments as a benchmark for environmentally sustainable activities. Reporting duties will, in turn, continue to be based around Taxonomy, and the information published by corporates will be used in financial products and may influence investment decisions. Prudential rules will require the collection of data by supervised entities from their portfolio companies, and also converge with Taxonomy requirements. Finally, all of the information gathered as part of the European sustainable finance framework may be used in the future to assess whether corporates active in the EU are fulfilling their fiduciary duties with respect to sustainability factors. The European sustainable finance framework strives to operate as a system of interconnected vessels – ensuring cohesiveness between various sections of European secondary legislation will constitute an important challenge for regulators. Given this, it is unfortunate that the constitutional aspect of the EGD and Strategy… has not yet been adequately pronounced.50 In the context of the EU sustainable finance framework, the degree of constitutional protection attached to considerations relating to sustainable development could have an influence on the frequency and success ratio of private enforcement, which, in turn, could have a positive influence on the efficacy and cohesiveness of the framework. This may be an issue for the European Court of Justice to address in the future.

    23Various typologies are used to describe regulatory tools and instruments employed by environmental law.51 For example, J. Gaba proposes to divide them into 1) imperative, 2) economic, and 3) information-based.52 J. Jendrośka, on the other hand, suggests to divide such instruments into 1) imperative, 2) planning, 3) market-based, 4) information-based, and 5) voluntary.53 The instruments employed by the European sustainable finance legislation are proving difficult to categorise. Many of the legislative instruments described above are of mandatory nature (e.g. prudential rules), while information-based instruments (reporting duties) also play a key role in the EU sustainable finance framework. It would, however, be a gross oversimplification to categorise product-based instruments (such as, e.g., the proposed European green bonds and instruments described in Articles 8 and 9 of the SFDR Regulation) as purely voluntary ones. They include elements of a voluntary, information-based, market and mandatory instruments. An issuer may issue a sustainable financial product under one of the frameworks provided for in EU law in a voluntary manner, however – such issuance carries various mandatory obligations (in particular reporting ones). In doing so, it aims to realise environmental, strategic or economic goals.

    IV. How Can the Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition?

    24It is, of course, not yet possible to assess whether the European sustainable finance framework, as described above, will be able to accomplish the goals set out in the Strategy…, and among them – first and foremost – the funding of the EU’s environmental and climate agenda. The regulations described above have generally been enacted very recently and, as such, the opportunity to assess their actual impact is still limited. In the last part of this chapter I will briefly examine the conditions needing to be met in order for the European sustainable finance regulations to contribute positively to the funding of the EU’s environmental and climate goals. Ultimately, for them to be successful in that regard, two (interconnected) conditions must be met: (i) the regulations at hand need to be able to bolster the interest and investor demand in sustainable financial products (or at least prevent such demand from decreasing), and (ii) the EU has to be able to ensure adequate review of the issuers’ conduct, declared as environmentally sustainable, e.g. as part of various financial instruments issued.

    25As a side remark, one must remember that this regulation is not the main force at play influencing investor demand for sustainable financial products. In fact, the European sustainable finance framework seems to work under the assumption that such demand will be increasing,54 and aims to act in a facilitating role. There is in fact evidence suggesting that investor demand for sustainable financial products is increasing, such as the growing sustainable bond market.55

    26These considerations must be placed in context. Sustainability considerations, including environmental and climate ones, are not an entirely new issue in finance. Green bonds have been available as a financial product on the market for more than a decade already, and they have functioned generally successfully in a ‘self-regulated’ environment – meaning that green bond issuances have so far been based around market standards, issuer declarations and external reviews wholly outside the scope of financial supervision. Of course, it can be argued that green bond issuances functioning in a ‘self-regulated’ environment are relatively simple to effect, however a growing market interest in such products is undeniable. As another example, various developmental institutions have already been including an array of significant sustainability considerations in their policies, strategies, as well as lending and investment practices, for quite some time.56

    27However, what distinguishes the European exercise from all of the above is the scale and impact of the European sustainable finance enterprise. Firstly, the Strategy…, and regulations resulting therefrom, exist in order to achieve concrete, measurable environmental and climate goals stemming from the EGD, many of which are also already enshrined in ‘hard law’ (e.g. the climate neutrality goal). The environmental goals enumerated in Article 9 of the Taxonomy Regulation exist solely in order to fulfil the EGD environmental and climate agenda.

    28Secondly, the European Union and its regulators necessarily play the role of facilitators in the context of the European financial system. As already indicated above, the primary manner in which the EU wishes to fund the EGD agenda is by mobilising private capital – by the Commission’s own admission – the scale of which is too great in order for it to be financed solely from public sources.57 This is why the EU and its institutions must rely on private investor demand and, for this reason, cannot, in each case, be the judge of whether, for example, a particular financial instrument or activity of a given corporate can in fact be considered environmentally sustainable. Monitoring and supervision of such issues is, to a varying degree, being delegated to national supervisory authorities (in the event of executing various regulatory requirements from issuers and supervised financial institutions – as is usually the case), auditors (in case of reporting), and external third-party verifiers (in the future – for issues of European green bonds and possibly other sustainable financial instruments). Therefore, the assessment of whether an activity is environmentally sustainable needs to guarantee a certain level and ease of comparability.

    29Thirdly, European sustainable finance regulations constitute part of a larger European financial system. As already indicated above, systemic risk associated with the environment and climate, historically underappreciated, needs to be taken into consideration by the European regulators and supervised financial institutions. On the other hand, failures by European and national regulators to police the area of sustainable finance adequately could have a detrimental impact on the European financial system as a whole. This is precisely why rooting out cases of greenwashing has a very high priority for the Commission.58 The materialisation of such cases could very well undermine trust not only in the accomplishment of the EGD agenda, but also more generally – in the whole of the European financial system. Needless to say, the stability of the European financial system and trust therein is a key consideration for the Commission and regulators over the European financial system.

    V. Challenges for the EU sustainable finance framework

    30Whether the regulations described in the earlier part of this chapter will be able to contribute to investor demand for sustainable products and allow for the adequate review of the (sustainable) performance of such products and the issuers’ conduct will depend on a number of factors.

    A. A test for the taxonomical approach

    31First, this will be a test for the European taxonomical approach.59 For reasons described above the European Union is currently basing its approach to environmental and climate sustainability on taxonomies, rather than on a more flexible, ‘principles-based’ approach. Taxonomy itself is a self-admittedly limited tool – it reviews only selected economic activities, and distinguishes only those contributing substantially to one of the EU’s environmental goals in the first place (without, e.g., discussing environmentally neutral or environmentally harmful activities). As briefly discussed in the earlier part of thid chapter already, EU law in fact allows for making sustainable investments wholly detachable from the Taxonomy. In practice however, for all of the reasons indicated above, the Taxonomy is at the centre of the European sustainable finance framework.

    32A taxonomical approach is of course based on taxonomies (in case of the EU – the Taxonomy); a set of detailed benchmarks and rules indicating whether a selected type of activity meets certain criteria. The main feature of the Taxonomy is that it aims to provide certainty as to whether a certain activity can be considered environmentally sustainable, thus allowing various actors (issuers, verifiers, investors, regulators) to make that assessment with relative precision. The delegated act to the Taxonomy60 is a long, technical document, examining whether a given activity contributes significantly to the goal of climate change mitigation or climate change adaptation, without causing any significant harm to other EU environmental goals. As such, the Taxonomy leaves little room for judgement.

    33On the other hand a principles-based approach would be one offering general guidelines, broadly indicating desirable and/or undesirable actions and outcomes. Principles-based sustainable finance strategies are generally easier to digest, comprehend, understand, and modify than taxonomies. They leave some room for interpretation and, as such, may be suitable to utilise, i.e., in a lender-borrower relationship in which the lender may want to achieve and police certain strategic sustainability goals and generally enjoys some degree of decisiveness. In the European context we have actually seen a principles-based approach employed in the past, where the previous iteration of the NFRD directive (accompanied by the Commission Guidelines on non-financial reporting) offered general guidelines for conduct reporting, without detailed benchmarks, and with few tools to enforce these rules. Commentators have indicated that, while these rules have historically made significant ‘soft’ impact in terms of promoting sustainable consideration, their actual impact on the market was limited.61 As such, they have now been amended as per the analysis in the earlier part of this chapter.

    34This is to say that a principles-based approach may not be suited to the European sustainable finance framework. For all of the reasons discussed above, a taxonomical approach – more detailed, but also rigid and more difficult to operationalise – was chosen instead. However, there are certain risks to its success.

    35First, as explained by Steuer and Tröger, taxonomies are very rigid and thus difficult to execute. This argument rings very true in the context of the EU taxonomy – it took over five years to develop it and make it work,62 and it is still not fully operational, with the second delegated act thereto, which should set out technical criteria for the remaining four, already significantly delayed, environmental goals. It will take even more time for it to be effectively utilised via secondary legislation.

    36Second, the Taxonomy is also difficult to change, for the same reasons, which means it is not a flexible instrument and, as such, may be prone to omitting important market or technical developments in the field of sustainability.63

    37Third, as already indicated above, the Taxonomy is limited in the sense that it covers only a limited array of economic activities and, among these, designates as environmentally sustainable only those that contribute significantly to one of the EU’s environmental goals. It pays no attention to activities that are environmentally neutral or environmentally harmful, and such benchmarks could arguably prove very helpful for investors. While there are seemingly plans to extend the scope of the Taxonomy,64 it is difficult to put much faith in them at this stage, given that, even in its base scope, the Taxonomy is already delayed.

    38Fourth, the Taxonomy is also prone to political pressure, as already exemplified by including in its scope activities relating to the production of energy from nuclear sources and natural gas, which has been widely commented on,65 and recently made subject to judicial review.66 Such conduct on the side of the EU regulators deserves criticism, including in the scope of Taxonomy activities which clearly are clearly doubtful at best, considering their environmental impact in itself damages its credibility. This is even more problematic owing to the fact that the Taxonomy is already firmly attached to various acts of secondary legislation relating to sustainable finance (e.g. reporting, prudential legislation). Therefore, actions undermining trust therein (e.g. greenwashing but also certifying doubtful activities as Taxonomy-aligned) may also negatively affect trust in the financial system as a whole, and the stability thereof. More generally, criteria set out in the Taxonomy for certain activities have been criticised as failing to establish clear pathways to climate neutrality.67

    B. The wider issue of transparency

    39Whether the European sustainable finance framework should prove useful for investors (and issuers) will also depend on the efficacy of various reporting regulations enacted by the EU, described in the earlier part of this chapter. These regulations require entities subjected to reporting duties, in particular financial institutions subject to prudential requirements and supervision, to collect significant amounts of sustainability-related data relating to their own activities or, in the case of financial institutions, their portfolio companies. As was already pointed out by industry commentators, the collection of said data generates a considerable cost for corporates68 (e.g. with financial institutions necessarily shifting their portfolio reporting obligations to their portfolio companies). The relevance and credibility of the reported data, and the ability and willingness of the investors to analyse it, will be the difference between the failure and success of the European exercise. It has been argued that, given the scope of EU reporting requirements, there is not enough leadership on EU’s part in developing adequate reporting standards and metrics.69 Commentators have also stressed that adequate data production competences may take years to develop,70 and that, e.g., reporting on Taxonomy compliance is complex and costly.71 These new reporting obligations may very well impact the global competitiveness of European companies – if the cost of data collection and monitoring outweighs the value of such additional data as judged by the markets. Of course, there is also a chance that the European sustainability reporting standards may be exported abroad given the size of the EU internal market and the Union’s ability (and arguably – interest) to become a standard-setter.72

    C. Greenwashing – A Looming Risk Made More Prominent

    40One must also remember that greenwashing constitutes a key risk within the EU sustainable finance framework. Greenwashing broadly means a practice where an entity’s conduct originally declared as environmentally sustainable proves otherwise. In practice, in order to fund the European sustainable transformation in an effective manner, it will be necessary to indicate cases where projects dedicated to the realisation of the EU’s environmental goals fail to perform adequately. Furthermore, the materialisation of cases of greenwashing could potentially undermine the participants’ trust in the European financial system as a whole.

    41It must be pointed out at this stage that the EU has, to an extent, increased the importance of greenwashing in the context of its financial system through its sustainable finance legislation. The EU regulator has made a conscious choice to try and attract private capital to the EGD agenda as one of its policy priorities. Some (economic) benefits are already being attached to the choices of Member States and corporates attached to this agenda.73 All of this was perhaps unavoidable, given the scale of the EGD exercise. However, in the future, in cases of greenwashing, the efficacy of the EU’s standards and supervision may be called into question. The issue of nudging certain policy outcomes has been discussed in the context of regulatory capital provisions.74 This now appears salient even outside of this context – due to the intertwining of the EU’s environmental agenda and financial regulation in general.

    42The verification of compliance will be of key importance here, whereas environmental and climate considerations generally require specific technical knowledge in order to assess and review compliance. In the context of European regulations, it has already been envisaged that a specialised third party will at times be employed to review certain conduct against its impact on climate and environmental factors. In the context of reporting, under the new CSRD Directive, external auditors will be required to certify essential data. For the European green bond standard, it has been envisaged that the issuing of European green bonds and the associated mandatory reports will require certification by external third party verifiers. These verifiers should in turn be subject to supervision by ESMA, with detailed rules concerning their required expertise and independence. Their role will be crucial within the European sustainable framework due to the fact that they will effectively act as ‘gatekeepers’ for the issuance of European green bonds. In this sense, their role is comparable to that of credit rating agencies for the credit market. As exemplified during the financial crisis of 2007–2008, the lack of independence on the part of credit rating agencies performing a ‘gatekeeping’ function for the lending sector may contribute to systemic difficulties on the market.75 Hence the need to ensure that the function performed by external third party verifiers within the European sustainable finance framework is independent of possible pressures from issuers, even more importantly due to the fact that the issuers are paying the verifiers’ bills. This risk is already being considered in the Commission’s legislative proposals; e.g. while the verifiers will be paid by the issuers, the European green bond regulation will most likely prevent this compensation from being dependent on the results of the verification, and require a separation between the verifiers’ analyst and sales teams.

    43Finally, in light of all the considerations described above, the execution of the European sustainable finance framework will require effective supervision within the wider financial system – on the part of both the European regulators (the European Supervisory Authorities and the European Central Bank), but in practice, even more importantly – the national regulatory authorities, owing to the nature of the structure of the European financial supervision architecture. For example, in the case of European green bonds, external third party verifiers should be supervised by ESMA. The ESMA should also propose the necessary regulatory technical standards. However, supervision of actual issuances of European green bonds and sanctioning of issuers and verifiers in relation thereto will be the competence of the national regulatory authorities. Similarly to how European financial institutions are now increasingly required to build sustainability-related competences, supervisors themselves also face a similar challenge in order to effectively monitor the conduct of the supervised entities and issuers in light of the new regulations.

    44In this context, it has been argued, for instance, that the European green bond proposal fails to adequately take private enforcement tools76 into consideration. While this issue extends beyond the scope of this chapter, private enforcement could indeed support public supervision, especially during the early stages of implementation of EU’s sustainable finance regulation, where adequate supervisory mechanisms have not yet been developed.77

    VI. Conclusions

    45While sustainability is not an entirely new topic in the financial regulatory framework, new European regulations have introduced a novel framework in which environmental and climate issues in particular are becoming increasingly important to consider for issuers, investors, and supervised financial institutions. A growing number of companies are being asked to supply more data concerning their environmental and climate performance to the market, in a comparable manner. While engaging in environmentally sustainable activities is generally voluntary in the interim, if an issuer choses to seek external financing with the purpose of financing such activities, it must obey a growing body of EU rules concerning its sustainable conduct and communicating its impact to investors. Financial institutions required to meet increasing prudential requirements concerning the inclusion of environmental and climate risks in their policies and strategies will also exert growing pressure on the market. One of the key rationales behind the EU rules described in this chapter is the need to finance the European sustainability agenda described in the EGD. In this context, the European Union is seemingly attempting to encourage Taxonomy-aligned conduct, either via reputational benefits available to an entity engaging in environmentally sustainable activities, or through various de facto subsidies. Further and even stronger incentives are potentially on the horizon. Corporate fiduciary duties with respect to ESG factors are currently on the European legislative agenda while, in the financial sector, different treatment of sustainability-related assets for the purpose of calculating regulatory capital is being discussed. The eventual success of the European sustainable finance framework depends on several factors. First, it will be a test for the taxonomical approach and, in particular, the efficacy with which the Taxonomy goals, the types of activities covered by the Taxonomy, and the Taxonomy technical criteria itself, have been chosen, as well as their propensity for change and modification. The effectiveness of incentives available to issuers and investors of sustainable financial products (often independent from regulations) will also be crucial. This too will be the case as concerns combatting greenwashing, which may have broader implications for trust placed in the European financial system. Ultimately, a question that will often be asked by issuers and investors is whether the benefits associated with sustainable financial instruments (which may be related to their price, performance, strategic considerations and/or reputational benefits, as applicable) outstrip the additional issuance costs and inherent regulatory risk. It will also be interesting to consider how markets receive additional sustainability-related information required from European companies, and how these companies handle the production of such information. Finally, effective supervision will play a key role in order to ensure the success of this framework, in particular in detecting and policing potential cases of greenwashing. Ideally, it should be supported by making robust private enforcement actions available.

    Notes de bas de page

    1 Commission, ‘The European Green Deal’ (Communication) COM(2019) 640 final.

    2 See EGD 1 (Introduction).

    3 Ibid., point 2.1.1.

    4 See eg: L. Krämer, ‘Planning for Climate and the Environment: the EU Green Deal’ (2020) 17 Journal for European Environmental & Planning Law 267–306.

    5 M. Romanowicz, ’Gotowi na transformację? Polityka klimatyczna Unii Europejskiej w świetle Pakietu Fit for 55’ (2022) 2 Europejski Przegląd Sądowy 35–43.

    6 See: A. Sikora, ‘European Green Deal – legal and financial challenges of the climate change’ (2021) 21 ERA Forum 681–97.

    7 J. Jendrośka, M. Reese and L. Squintani, ‘Towards a new legal framework for sustainability under the European Green Deal’ (2021) 19(2) Opolskie Studia Administracyjno-Prawne 87–116.

    8 Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) 401/2009 and (EU) 2018/1999 (‘European Climate Law’) [2021] OJ L243, 1–17.

    9 Ibid., Art. 2 and 4 and Art. 6, respectively.

    10 The consolidated version of the Treaty on the Functioning of the European Union [2012] OJ C326/12.

    11 M. Pianta and M. Lucchese, ‘Rethinking the European Green Deal: An Industrial Policy for a Just Transition in Europe’ (2020) 52(4) Review of Radical Political Economics 633–41.

    12 C. Jaeger, J. Mielke, F. Schütze, S. Teitge and S. Wolf, ‘The European Green Deal – More Than Climate Neutrality’ (2021) 56(2) Intereconomics Review of European Economic Policy 99–107.

    13 J. Jendrośka, M. Reese and L. Squintani, ‘Towards a new legal framework’ (n 7 above).

    14 Commission, ‘Strategy for Financing the Transition to a Sustainable Economy’ (Communication) COM(2021) 390 final.

    15 Commission, ‘Sustainable Europe Investment Plan – European Green Deal Investment Plan’ (Communication) COM(2020) 21 final.

    16 For general considerations, see eg: D. Schoenmaker and W. Schramade, Principles of Sustainable Finance (Oxford, Oxford University Press, 2019).

    17 Already set out in the previous strategic document of the Commission concerning sustainable finance – ’Action Plan: Financing Sustainable Growth’ (Communication) COM(2018) 097 final.

    18 ‘Strategy for Financing the Transition’ (n 14 above) Introduction – enhancing the EU sustainable finance framework.

    19 Ibid.

    20 For the purposes of this chapter, sustainable financial instruments shall be broadly understood as ones that, apart from realising certain financial goals, also promise to accomplish certain sustainability-related goals, see e.g., definition offered as part of the Principles for Responsible Investment, see: Principles for Responsible Investment – Reporting Framework glossary (2023).

    21 See eg: A. Thompson, ‘The Global Regime for Climate Finance: Political and Legal Challenges’ in C. Carlarne, K. Gray and R. Tarasofsky (eds), The Oxford Handbook of International Climate Change Law (Oxford, Oxford University Press, 2016).

    22 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L198 (‘Taxonomy Regulation’ while the classification system enshrined therein will be referred to as the ‘Taxonomy’), 13–43.

    23 See: Art. 3 and Art. 10–16 of the Taxonomy Regulation.

    24 Ibid., Art. 3 and Art. 17–19.

    25 See e.: R. Maruszkin (ed), Taksonomia. Komentarz do rozporządzenia 2020/852 w sprawie ustanowienia ram ułatwiających zrównoważone inwestycje (Warszawa, Beck, 2022).

    26 See eg: Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of environmental, social and governance risks [2022] OJ L324, 1–54.

    27 See: Proposal for a Regulation of the European Parliament and of the Council on European green bonds COM(2021) 391 final.

    28 See: Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility [2021] OJ L57, 17–75, Art. 5.

    29 See Sustainable Europe Investment Plan… 3 Fund: mobilising sustainable investment from all sources.

    30 See eg: EIB Group Climate Bank Roadmap 2021-2025 (EIB, 2020) 55–60.

    31 In the context of ESG reporting, see e.g.: R. Eccles and D. Saltzman, ‘Achieving Sustainability Through Integrated Reporting’ (2011/9) Stanford Social Innovation Review 3 56–61.

    32 See eg: European Banking Authority (EBA) report, On management and supervision of ESG risks for credit institutions and investment firms, EBA/REP/2021/18 [2021] 11.

    33 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L330, 1–9.

    34 R. Breijer and R. Orij, ‘The Comparability of Non-Financial Information: An Exploration of the Impact of the Non-Financial Reporting Directive’ (NFRD, 2014/95/EU), (2022) 19(2) Accounting in Europe 332–61.

    35 See: Art. 8 of the Taxonomy Regulation and Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation [2021] OJ L443, 9–67.

    36 Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting [2022] OJ L322, Art. 1.

    37 Ibid.

    38 Ibid., Art. 3 and 1 respectively.

    39 See: Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 48/2012 [2013] OJ L176, 1–337 (‘the CRR Regulation’), Art. 449a.

    40 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector [2019] OJ L317, 1–16 (the ‘SFDR Regulation’), Art. 3 and 4 respectively.

    41 See: Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 [2022] OJ L 196, 1–72.

    42 See eg:, for the banking sector: Commission Implementing Regulation (EU) 2022/2453, for the insurance sector: Commission Delegated Regulation (EU) 2021/1256 of 21 April 2021 amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings [2021] OJ L277, 14–17), for the capital markets sector: Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms [2021 OJ L277, 1–5.

    43 See eg: On management and supervision of ESG risks…, Guide on climate-related and environmental risks (2020) European Central Bank.

    44 See eg: Commission Implementing Regulation (EU) 2022/2453 (n 26 above), Table 3.

    45 ‘Strategy for Financing the Transition…’ (n 14 above), 1.

    46 See: Art. 8 and 9 of the SFDR Regulation in conjunction with annexes to: Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 [2022] OJ L196, 1–72.

    47 See the Proposal for a Regulation of the European Parliament and of the Council on European green bonds (COM (2021) 391 final, 2021/0191/COD), for a general review see: M. Pyka ‘The EU Green Bond Standard: A Plausible Response to the Deficiencies of the EU Green Bond Market?’ (2023) Eur Bus Org Law Rev 623–643.

    48 Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) [2015] OJ L12/1.

    49 See: Commission, ’Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937’, COM(2022) 71 final.

    50 See: A. Sikora, ‘European Green Deal – legal and financial challenges’ (n 6 above).

    51 See eg: M. Stoczkiewicz, Prawo ochrony klimatu w kontekście praw człowieka (Warszawa, Wolters Kluwer, 2021).

    52 J. M. Gaba, Environmental Law (St. Paul, Minn., West Publishing Co., 1994) 27.

    53 J Jendrośka, ‘Instrumenty ochrony środowiska’ in J. Jendrośka (ed) et al., Prawo ochrony środowiska dla praktyków (Warszawa, Verlag Dashöfer 1999) 1.

    54 See eg: ‘Strategy for Financing the Transition’ (n 14 above), Accelerating the contribution of the financial sector to transition efforts.

    55 See eg: data from Moody’s, Sustainable bonds to hit record $1.35 trillion in 2022: http://dkf1ato8y5dsg.cloudfront.net/uploads/52/504/esg.pdf.

    56 See eg: Environmental and Social Policy of the European Bank for Reconstruction and Development, current version: 25 April 2019.

    57 ‘Strategy for Financing the Transition’ (n 14 above).

    58 Ibid., Addressing greenwashing.

    59 For general considerations, see: M. Och, ‘Sustainable Finance and the EU Taxonomy Regulation – Hype or Hope?’ (2020) 5 Jan Ronse Institute for Company & Financial Law Working Paper available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3738255 ; F. Schütze and J. Stede, ‘The EU sustainable finance taxonomy and its contribution to climate neutrality’ (2021) Journal of Sustainable Finance & Investment 128-160.

    60 Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation, and for determining whether that economic activity causes no significant harm to any of the other environmental objectives [2021] OJ L442, 1–349.

    61 See eg: A. Venturelli, S. Pizzi, F. Caputo and S. Principale, ‘The Revision of Non-Financial Reporting Directive: A critical lens on the comparability principle’ (2020) 29 Business Strategy and the Environment 3584-3597.

    62 S. Steuer and T. Tröger, ‘The Role of Disclosure in Green Finance’ (2022) 8 Journal of Financial Regulation 1-50.

    63 Ibid.

    64 ‘Strategy for Financing the Transition’ (n 14 above).

    65 Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending the Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and the Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities [2022] OJ L 188, 1–45.

    66 See eg: press release from World-Wide Fund for Nature (WWF) dated 18.09.2022: EU Taxonomy: Environmental groups start legal action against ‘sustainable’ gas classification: www.wwf.eu/?7581466/EU-Taxonomy-Environmental-groups-start-legal-action-against-sustainable-gas-classification.

    67 F. Schütze and J. Stede, The EU sustainable finance taxonomy and its contribution to climate neutrality… (note 59 above).

    68 See e.g. the publication of Polish industry organisations in the financial sector, Zbiór podstawowych wskaźników ESG, 2021, available: https://zbp.pl/getmedia/11012d08-18de-4b97-a44b-db8cb0761963/Zbior_podstawowych_wskaznikow_ESG_POPR_15-06-2021.

    69 I. H.-Y. Chiu, ‘The EU Sustainable Finance Agenda: Developing Governance for Double Materiality in Sustainability Metrics’ (2022) European Business Organization Law Review 87–123.

    70 D. Zetzsche and L. Anker-Sørensen, ‘Regulating Sustainable Finance in the Dark’ (2022) European Business Organization Law Review 47–85.

    71 M. Och, ‘Sustainable Finance and the EU Taxonomy Regulation’ (n 59 above).

    72 For general considerations, see: A. Bradford, The Brussels Effect: How the European Union Rules the World (New York, Oxford University Press, 2020, online edn.).

    73 E.g. in the context of the Recovery and Resilience instrument discussed in the earlier part of this chapter.

    74 See eg: K. Alexander and P. Fisher, Banking Regulation and Sustainability (2018), available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3299351.

    75 Similarly eg: I. H.-Y. Chiu, ‘The EU Sustainable Finance Agenda’ (n 69 above).

    76 M. Pyka, ‘The EU Green Bond Standard’ (n 47 above).

    77 For a general review, see eg: J. Armour, D. Awrey, P. Davies, L. Enriques, J. Gordon, C. Mayer and J. Payne, Principles of Financial Regulation (Oxford, Oxford University Press, 2016) 587–95.

    Auteur

    • Marcin Krzemień

      PhD, University of Warsaw, Poland

    Précédent Suivant
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    1 Commission, ‘The European Green Deal’ (Communication) COM(2019) 640 final.

    2 See EGD 1 (Introduction).

    3 Ibid., point 2.1.1.

    4 See eg: L. Krämer, ‘Planning for Climate and the Environment: the EU Green Deal’ (2020) 17 Journal for European Environmental & Planning Law 267–306.

    5 M. Romanowicz, ’Gotowi na transformację? Polityka klimatyczna Unii Europejskiej w świetle Pakietu Fit for 55’ (2022) 2 Europejski Przegląd Sądowy 35–43.

    6 See: A. Sikora, ‘European Green Deal – legal and financial challenges of the climate change’ (2021) 21 ERA Forum 681–97.

    7 J. Jendrośka, M. Reese and L. Squintani, ‘Towards a new legal framework for sustainability under the European Green Deal’ (2021) 19(2) Opolskie Studia Administracyjno-Prawne 87–116.

    8 Regulation (EU) 2021/1119 of the European Parliament and of the Council of 30 June 2021 establishing the framework for achieving climate neutrality and amending Regulations (EC) 401/2009 and (EU) 2018/1999 (‘European Climate Law’) [2021] OJ L243, 1–17.

    9 Ibid., Art. 2 and 4 and Art. 6, respectively.

    10 The consolidated version of the Treaty on the Functioning of the European Union [2012] OJ C326/12.

    11 M. Pianta and M. Lucchese, ‘Rethinking the European Green Deal: An Industrial Policy for a Just Transition in Europe’ (2020) 52(4) Review of Radical Political Economics 633–41.

    12 C. Jaeger, J. Mielke, F. Schütze, S. Teitge and S. Wolf, ‘The European Green Deal – More Than Climate Neutrality’ (2021) 56(2) Intereconomics Review of European Economic Policy 99–107.

    13 J. Jendrośka, M. Reese and L. Squintani, ‘Towards a new legal framework’ (n 7 above).

    14 Commission, ‘Strategy for Financing the Transition to a Sustainable Economy’ (Communication) COM(2021) 390 final.

    15 Commission, ‘Sustainable Europe Investment Plan – European Green Deal Investment Plan’ (Communication) COM(2020) 21 final.

    16 For general considerations, see eg: D. Schoenmaker and W. Schramade, Principles of Sustainable Finance (Oxford, Oxford University Press, 2019).

    17 Already set out in the previous strategic document of the Commission concerning sustainable finance – ’Action Plan: Financing Sustainable Growth’ (Communication) COM(2018) 097 final.

    18 ‘Strategy for Financing the Transition’ (n 14 above) Introduction – enhancing the EU sustainable finance framework.

    19 Ibid.

    20 For the purposes of this chapter, sustainable financial instruments shall be broadly understood as ones that, apart from realising certain financial goals, also promise to accomplish certain sustainability-related goals, see e.g., definition offered as part of the Principles for Responsible Investment, see: Principles for Responsible Investment – Reporting Framework glossary (2023).

    21 See eg: A. Thompson, ‘The Global Regime for Climate Finance: Political and Legal Challenges’ in C. Carlarne, K. Gray and R. Tarasofsky (eds), The Oxford Handbook of International Climate Change Law (Oxford, Oxford University Press, 2016).

    22 Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 [2020] OJ L198 (‘Taxonomy Regulation’ while the classification system enshrined therein will be referred to as the ‘Taxonomy’), 13–43.

    23 See: Art. 3 and Art. 10–16 of the Taxonomy Regulation.

    24 Ibid., Art. 3 and Art. 17–19.

    25 See e.: R. Maruszkin (ed), Taksonomia. Komentarz do rozporządzenia 2020/852 w sprawie ustanowienia ram ułatwiających zrównoważone inwestycje (Warszawa, Beck, 2022).

    26 See eg: Commission Implementing Regulation (EU) 2022/2453 of 30 November 2022 amending the implementing technical standards laid down in Implementing Regulation (EU) 2021/637 as regards the disclosure of environmental, social and governance risks [2022] OJ L324, 1–54.

    27 See: Proposal for a Regulation of the European Parliament and of the Council on European green bonds COM(2021) 391 final.

    28 See: Regulation (EU) 2021/241 of the European Parliament and of the Council of 12 February 2021 establishing the Recovery and Resilience Facility [2021] OJ L57, 17–75, Art. 5.

    29 See Sustainable Europe Investment Plan… 3 Fund: mobilising sustainable investment from all sources.

    30 See eg: EIB Group Climate Bank Roadmap 2021-2025 (EIB, 2020) 55–60.

    31 In the context of ESG reporting, see e.g.: R. Eccles and D. Saltzman, ‘Achieving Sustainability Through Integrated Reporting’ (2011/9) Stanford Social Innovation Review 3 56–61.

    32 See eg: European Banking Authority (EBA) report, On management and supervision of ESG risks for credit institutions and investment firms, EBA/REP/2021/18 [2021] 11.

    33 Directive 2014/95/EU of the European Parliament and of the Council of 22 October 2014 amending Directive 2013/34/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups [2014] OJ L330, 1–9.

    34 R. Breijer and R. Orij, ‘The Comparability of Non-Financial Information: An Exploration of the Impact of the Non-Financial Reporting Directive’ (NFRD, 2014/95/EU), (2022) 19(2) Accounting in Europe 332–61.

    35 See: Art. 8 of the Taxonomy Regulation and Commission Delegated Regulation (EU) 2021/2178 of 6 July 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by specifying the content and presentation of information to be disclosed by undertakings subject to Articles 19a or 29a of Directive 2013/34/EU concerning environmentally sustainable economic activities, and specifying the methodology to comply with that disclosure obligation [2021] OJ L443, 9–67.

    36 Directive (EU) 2022/2464 of the European Parliament and of the Council of 14 December 2022 amending Regulation (EU) No 537/2014, Directive 2004/109/EC, Directive 2006/43/EC and Directive 2013/34/EU, as regards corporate sustainability reporting [2022] OJ L322, Art. 1.

    37 Ibid.

    38 Ibid., Art. 3 and 1 respectively.

    39 See: Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 48/2012 [2013] OJ L176, 1–337 (‘the CRR Regulation’), Art. 449a.

    40 Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector [2019] OJ L317, 1–16 (the ‘SFDR Regulation’), Art. 3 and 4 respectively.

    41 See: Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 [2022] OJ L 196, 1–72.

    42 See eg:, for the banking sector: Commission Implementing Regulation (EU) 2022/2453, for the insurance sector: Commission Delegated Regulation (EU) 2021/1256 of 21 April 2021 amending Delegated Regulation (EU) 2015/35 as regards the integration of sustainability risks in the governance of insurance and reinsurance undertakings [2021] OJ L277, 14–17), for the capital markets sector: Commission Delegated Regulation (EU) 2021/1253 of 21 April 2021 amending Delegated Regulation (EU) 2017/565 as regards the integration of sustainability factors, risks and preferences into certain organisational requirements and operating conditions for investment firms [2021 OJ L277, 1–5.

    43 See eg: On management and supervision of ESG risks…, Guide on climate-related and environmental risks (2020) European Central Bank.

    44 See eg: Commission Implementing Regulation (EU) 2022/2453 (n 26 above), Table 3.

    45 ‘Strategy for Financing the Transition…’ (n 14 above), 1.

    46 See: Art. 8 and 9 of the SFDR Regulation in conjunction with annexes to: Commission Delegated Regulation (EU) 2022/1288 of 6 April 2022 [2022] OJ L196, 1–72.

    47 See the Proposal for a Regulation of the European Parliament and of the Council on European green bonds (COM (2021) 391 final, 2021/0191/COD), for a general review see: M. Pyka ‘The EU Green Bond Standard: A Plausible Response to the Deficiencies of the EU Green Bond Market?’ (2023) Eur Bus Org Law Rev 623–643.

    48 Commission Delegated Regulation (EU) 2015/35 of 10 October 2014 supplementing Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance (Solvency II) [2015] OJ L12/1.

    49 See: Commission, ’Proposal for a Directive of the European Parliament and of the Council on Corporate Sustainability Due Diligence and amending Directive (EU) 2019/1937’, COM(2022) 71 final.

    50 See: A. Sikora, ‘European Green Deal – legal and financial challenges’ (n 6 above).

    51 See eg: M. Stoczkiewicz, Prawo ochrony klimatu w kontekście praw człowieka (Warszawa, Wolters Kluwer, 2021).

    52 J. M. Gaba, Environmental Law (St. Paul, Minn., West Publishing Co., 1994) 27.

    53 J Jendrośka, ‘Instrumenty ochrony środowiska’ in J. Jendrośka (ed) et al., Prawo ochrony środowiska dla praktyków (Warszawa, Verlag Dashöfer 1999) 1.

    54 See eg: ‘Strategy for Financing the Transition’ (n 14 above), Accelerating the contribution of the financial sector to transition efforts.

    55 See eg: data from Moody’s, Sustainable bonds to hit record $1.35 trillion in 2022: http://dkf1ato8y5dsg.cloudfront.net/uploads/52/504/esg.pdf.

    56 See eg: Environmental and Social Policy of the European Bank for Reconstruction and Development, current version: 25 April 2019.

    57 ‘Strategy for Financing the Transition’ (n 14 above).

    58 Ibid., Addressing greenwashing.

    59 For general considerations, see: M. Och, ‘Sustainable Finance and the EU Taxonomy Regulation – Hype or Hope?’ (2020) 5 Jan Ronse Institute for Company & Financial Law Working Paper available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3738255 ; F. Schütze and J. Stede, ‘The EU sustainable finance taxonomy and its contribution to climate neutrality’ (2021) Journal of Sustainable Finance & Investment 128-160.

    60 Commission Delegated Regulation (EU) 2021/2139 of 4 June 2021 supplementing Regulation (EU) 2020/852 of the European Parliament and of the Council by establishing the technical screening criteria for determining the conditions under which an economic activity qualifies as contributing substantially to climate change mitigation or climate change adaptation, and for determining whether that economic activity causes no significant harm to any of the other environmental objectives [2021] OJ L442, 1–349.

    61 See eg: A. Venturelli, S. Pizzi, F. Caputo and S. Principale, ‘The Revision of Non-Financial Reporting Directive: A critical lens on the comparability principle’ (2020) 29 Business Strategy and the Environment 3584-3597.

    62 S. Steuer and T. Tröger, ‘The Role of Disclosure in Green Finance’ (2022) 8 Journal of Financial Regulation 1-50.

    63 Ibid.

    64 ‘Strategy for Financing the Transition’ (n 14 above).

    65 Commission Delegated Regulation (EU) 2022/1214 of 9 March 2022 amending the Delegated Regulation (EU) 2021/2139 as regards economic activities in certain energy sectors and the Delegated Regulation (EU) 2021/2178 as regards specific public disclosures for those economic activities [2022] OJ L 188, 1–45.

    66 See eg: press release from World-Wide Fund for Nature (WWF) dated 18.09.2022: EU Taxonomy: Environmental groups start legal action against ‘sustainable’ gas classification: www.wwf.eu/?7581466/EU-Taxonomy-Environmental-groups-start-legal-action-against-sustainable-gas-classification.

    67 F. Schütze and J. Stede, The EU sustainable finance taxonomy and its contribution to climate neutrality… (note 59 above).

    68 See e.g. the publication of Polish industry organisations in the financial sector, Zbiór podstawowych wskaźników ESG, 2021, available: https://zbp.pl/getmedia/11012d08-18de-4b97-a44b-db8cb0761963/Zbior_podstawowych_wskaznikow_ESG_POPR_15-06-2021.

    69 I. H.-Y. Chiu, ‘The EU Sustainable Finance Agenda: Developing Governance for Double Materiality in Sustainability Metrics’ (2022) European Business Organization Law Review 87–123.

    70 D. Zetzsche and L. Anker-Sørensen, ‘Regulating Sustainable Finance in the Dark’ (2022) European Business Organization Law Review 47–85.

    71 M. Och, ‘Sustainable Finance and the EU Taxonomy Regulation’ (n 59 above).

    72 For general considerations, see: A. Bradford, The Brussels Effect: How the European Union Rules the World (New York, Oxford University Press, 2020, online edn.).

    73 E.g. in the context of the Recovery and Resilience instrument discussed in the earlier part of this chapter.

    74 See eg: K. Alexander and P. Fisher, Banking Regulation and Sustainability (2018), available at SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3299351.

    75 Similarly eg: I. H.-Y. Chiu, ‘The EU Sustainable Finance Agenda’ (n 69 above).

    76 M. Pyka, ‘The EU Green Bond Standard’ (n 47 above).

    77 For a general review, see eg: J. Armour, D. Awrey, P. Davies, L. Enriques, J. Gordon, C. Mayer and J. Payne, Principles of Financial Regulation (Oxford, Oxford University Press, 2016) 587–95.

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    Krzemień, M. (2024). How Can Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition?. In A. Sikora & I. Kawka (éds.), The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework. Bruxelles: Presses universitaires Saint-Louis Bruxelles. https://doi.org/10.4000/12kfb
    Krzemień, Marcin. « How Can Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition? ». In The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework, édité par Alicja Sikora et Inga Kawka. Bruxelles: Presses universitaires Saint-Louis Bruxelles, 2024. doi:10.4000/12kfb.
    Krzemień, Marcin. « How Can Sustainable Finance Regulation Contribute to the Funding of the EU’s Environmental and Climate Transition? ». The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework, édité par Alicja Sikora et Inga Kawka, Presses universitaires Saint-Louis Bruxelles, 2024, https://doi.org/10.4000/12kfb.

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    Sikora, A., & Kawka, I. (éds.). (2024). The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework. Bruxelles: Presses universitaires Saint-Louis Bruxelles. https://doi.org/10.4000/12kfd
    Sikora, Alicja, et Inga Kawka, éd. The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework. Bruxelles: Presses universitaires Saint-Louis Bruxelles, 2024. doi:10.4000/12kfd.
    Sikora, Alicja, et Inga Kawka, éditeurs. The European Green Deal and the Impact of Climate Change on the EU Regulatory Framework. Presses universitaires Saint-Louis Bruxelles, 2024, https://doi.org/10.4000/12kfd.
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