Authored by: Jasper Meijer & Rajul Mittal, Synechron Business Consulting
As per the European Commission, the achievement of the Paris agreement’s climate and energy targets for 2030 require additional yearly investments of EUR 180 billion. As the financial sector plays a key role in facilitating capital flows, the EU is working on integrating sustainability considerations into financial policy frameworks (referred to as ‘sustainable finance’). In the context of the Paris agreement and the UN Sustainable Development Goals, it will not belong before financial service providers feel the impact of sustainable finance.
In this article, the legislative and non-legislative proposals of the Commission are considered, alongside the potential impact of these proposals on several financial service providers. The key takeaways are listed below:
- The proposals will have a considerable future impact on the business processes of manufacturers of financial products (like sustainable investment funds, and providers of investment services, such as asset and wealth managers)
- In addition to the impact on processes, characteristics of the financial instruments included in portfolios also can be impacted significantly if the shift towards sustainable investing keeps up
- The area of corporate sustainability reporting is one of the areas that will further develop and mature in the upcoming years
The European Commission Action Plan
In their action plan on financing sustainable growth, the European Commission refers to sustainable finance as ‘the process of taking due account of environmental, social and governance (ESG) considerations in investment decision-making, leading to increased investments in longer-term and sustainable activities’. The above definition shows that there is a paradigm shift from purely looking at the profit as a key performance indicator to a broader view, which also includes environmental and social aspects.