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Sustainable Finance: From voluntary initiatives to a
highly-regulated area?

Authored by – Washina Nizak, Regulatory Expert Sustainable Finance, Amsterdam and
Jara Kloos, Consultant, Amsterdam

“Sustainable Finance is defined as the provision of finance to investments considering environmental, social and governance factors”1

If you have time to read, there are a lot of reports, guidelines, principles, regulations, and recommendations related to Sustainable Finance (SF) out there. Sustainable Finance is certainly a mainstream topic these days; the amount of publications available can be daunting.

Global bodies, regional working groups, local policy-makers and industry associations are rapidly developing initiatives to support and incentivize SF. A survey conducted by the Basel Committee (March 2020)2 suggests that ‘the majority of Basel Committee members (central banks and regulators) consider it appropriate to address climate-related financial risks within their existing regulatory and supervisory frameworks’.

Simultaneously, financial institutions are increasingly taking the stage. They are actively embedding their influence and channelling funds towards investments that deliver measurable non-financial benefits and long-term financial returns.

Below are just a few examples that illustrate the rapid development of SF-related initiatives:

  • The United Nations - Sustainable Development Goals (UN SDG’s)
  • Principles for Responsible Investment (PRI)
  • UN Principles for Responsible Banking (PRB)
  • European Union Action Plan
  • ESG reporting guidelines
  • Taskforce on Climate-related Financial Disclosures (TCFD)
  • Sustainable Banking Network (SBN)
  • International Platform on Sustainable Finance
  • EU High-Level Expert Group on Sustainable Finance (HLEG SF)
  • The EU Green Deal
  • The EBF Working group on the Application of the EU Taxonomy to Core Banking Products
  • DNB Sustainable Finance Platform

What lies ahead?
In light of the ‘push’ by initiatives across the financial sector, and the ‘pull’ by societal players, the question on everyone’s mind is: How will the SF regulatory landscape evolve?

For now, the global initiatives remain voluntary. National policy frameworks are fragmented and mainly principle-based. It is the European Union that has taken the mantle and can be named as the absolute front-runner in the area of Sustainable Finance. The EU regulatory body is currently e sole regulatory body that has initiated binding regulations in this field. But there is more on the horizon.

1 Definition by the European Commission
2 https://www.bis.org/press/p200430.htm

More information and details on the EU Regulatory Developments will follow in our next Synechron “Knowledge Bytes” blog post.

Until then, if you would like to know more, please contact our Sustainable Finance expert team:

Rajul Mittal, Head of Sustainable Finance, Amsterdam
Rajul.Mittal@synechron.com

Washina Nizak, Regulatory Expert Sustainable Finance, Amsterdam
Washina.Nizak@synechron.com