EU Action Plan for Sustainable Growth

Table of Contents

1. Frontmatter

2. 1. Changing the Game: The EU Is Redirecting Capital Flows to Sustainable Purposes with Its EU Action Plan

   Karen Wendt

   Abstract

   The EU Sustainable Finance Action Plan (EUR-LEX 2018) on financing sustainable growth (hereinafter referred to as the Action Plan) is based on the Final Report of the High-Level Expert Group (HLEG) on Sustainable Finance set up by the EU Commission. It contains the final proposals of the expert panel, which was composed of high-level industry experts from the asset management sector and academia. The taxonomy includes a ten-point plan for transforming the economy into a sustainable one. In addition to key HLEG recommendations, it installs the introduction of climate benchmarks, accounting rules, new tasks on credit rating agencies, and the consideration of sustainability in prudential regulations for banks and insurance companies, which includes a “Green Supporting Factor” (EUR-LEX 2018). The Green Supporting Factor means that the EU incentivizes the transformation of the economy toward green production and increased investment volume for green investments (EU High-Level Expert Group on Sustainable Finance 2018 in EUR-LEX 2018). At the heart of this is a unified classification system of economic activities, called taxonomy, which aims to end the fragmentation, fraying, and fragmentation of the notion of sustainable or green investments.

3. 2. Regulatory Basics

   Karen Wendt

   Abstract

   The EU ventures its own definition of sustainable finance or sustainable investment. For the EU, environmentally sustainable economic activity means that the economic activities contribute to at least one of the six EU environmental goals defined in the Green Taxonomy and do not compromise any other EU environmental goal (so-called do no significant harm (DNSH) rule), as well as complying with the OECD Guidelines for Responsible Business Practice. These are implemented, for example, in an industry-specific manner in the OECD Guidelines for Multinational Enterprises (so-called OECD MNE Guidelines 2011) and for export credit agencies in the OECD Common Approaches (OECD 2016) as well according to their Green Transition Framework (OECD 2022). This results in the following triad illustrated in Fig. 2.1 which, taken together, gives the new EU definition of sustainability and forms the basis for sustainable finance.

4. 3. Developing Investment Standards in the EU

   Karen Wendt

   Abstract

   The European Union’s involvement in investment standards development, such as the EU Green Bond Standard, is driven by several factors related to its overarching goals, regulatory frameworks, and commitment to sustainability. Various drivers like promoting sustainability, setting market standards, enhancing confidence, and driving innovation alongside supporting policy objectives are the most important drivers for the EU for setting standards. These are tackled now one by one.

5. 4. Impact of the EU Taxonomy on Taxonomy-Compliant Product Development in the Financial Industry

   Karen Wendt

   Abstract

   The EU Taxonomy has significantly influenced product development in the asset management industry and beyond, fostering the creation of financial instruments that align with sustainable objectives. The EU Taxonomy provides a framework that helps define which economic activities can be considered environmentally sustainable, thereby guiding the development of various green financial products.

6. 5. Impacts and Consequences for Investors

   Karen Wendt

   Abstract

   The EU Action Plan is embedded into other global initiatives toward more sustainability, which together form new societal contracts and Global Administrative Law.

7. 6. Product Innovation in the Financial Industry in Response to the EU Action Plan and Green Deal

   Karen Wendt

   Abstract

   First and foremost, the financial industry has begun to focus on structured bonds that can fulfill the EU Action Plan and Taxonomy. In addition, there are thematic funds that concentrate on the issues of circular economy, biodiversity, clean water, and maritime fishery as well as clean energy. The innovation is currently in the following areas:

   1.

   Structured bonds

    

   2.

   New Indices as basis for exchange-traded fund products

    

   3.

   Thematic equity funds mixing primary market and secondary market assets.

    

8. 7. Greenwashing: A New Topic in the Financial Industry

   Karen Wendt

   Abstract

   In recent years, the financial industry has faced increasing scrutiny over “greenwashing,” “social washing,” and “bluewashing” as a consequence of more stringent regulation provided by the EU Action Plan, the EU Taxonomy, the Green Deal, and the MiFID Regulation about sustainability and ESG (environmental, social, and governance) criteria which have become central to investment strategies. These terms describe misleading practices where companies or financial products are portrayed as more environmentally or socially responsible than they truly are. The European Union (EU) has taken a leading role in defining and addressing these issues to protect investors and ensure genuine progress toward sustainability.

9. Backmatter