Sustainable finance is vital for achieving the objectives of the green transition

The Action Plan for Sustainable Finance that the European Commission published in 2018 has led the regulatory tsunami in the EU, resulting in a vast body of sustainable finance-related regulation. For example, ESMA’s implementation timeline for sustainable finance includes steps up to 2028, even though its major regulatory packages have been completed. At the same time, the principles of the LMA and ICMA have also gained in popularity and provided a strong basis for self-regulation in the industry that is widely followed.

In the light of these developments, there is a need in sustainable finance for a standardised definition of ‘green’ and a taxonomy of green activities to enable investors and financial institutions to make informed assessments effectively. This is why the future EU Green Bond Standard will be based specifically on the EU taxonomy regulation. The European Banking Authority also published a report in December 2023 where it recommended that the Commission introduce a voluntary standard for European green loans or at least a definition of green loans in the EU. The Commission is currently considering this report and further actions.

The above initiatives and regulatory developments can be seen as a result of the greenwashing debate. Greenwashing is currently being discussed by investors, financiers and other market participants alike. At the same time, the green transition is progressing rapidly, and sustainable finance is needed to meet the objectives. The European Commission estimates that by 2030 an additional EUR 620 billion of investments will be needed every year. Sustainable finance is therefore a vital condition for the realisation of these investments. We are following the progress of the green transition objectives and the regulation of sustainable finance with interest.