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2022 | Buch

Information as a Driver of Sustainable Finance

The European Regulatory Framework


Über dieses Buch

The Sustainable Development Goals introduced by the United Nations in 2016 call for the significant mobilisation of finance. However, although sustainable investments are steadily increasing, there still remain large gaps within financing and the information that financial markets rely on is often incomplete or incorrect. For instance, the financial system has been structured around short-term frameworks and goals while the most pressing environmental and social challenges are long-term. Prices do not convey the cost of externalities associated with social and environmental challenges. It is therefore important to implement the effective pricing of externalities and create a common language and taxonomy between investors, issuers and policy-makers in order to best serve sustainable development. Addressing this challenge, the authors delve deeper into the levers that can be pulled within the financial system to prompt an efficient ecosystem of sustainability-related information, allowing social and environmental externalities to be incorporated into the decision-making process of all market agents. Incentives needed for investors, issuers and intermediaries are proposed along with regulation that can trigger these incentives. This book offers a comprehensive collection of chapters which explore the ongoing evolution of the European regulatory framework, providing essential reading for policymakers, practitioners and researchers alike.


Chapter 1. Introduction
The international community is increasingly recognising the need to combine economic development with environmental protection and achievement of collective goals. At the same time, market participants are progressively incorporating ESG (Environmental, Social and Governance) factors in their decision-making process, aiming at channelling resources to sustainable projects. The European Union (EU) has long acknowledged the role of private finance in channelling resources towards sustainable activities as well as the need for regulatory measures promoting an efficient ecosystem of sustainability-related information. Against this backdrop, the present book aims to offer a systematic, updated and critical review of the ambitious EU regulatory interventions. These interventions will be read mainly through the lens of the role that information can play as a driver of transformation. In fact, all market participants need reliable and comparable non-financial information to incorporate sustainability into their decision-making process and to channel resources to sustainable activities correctly priced by financial markets.
Claudia Guagliano, Nadia Linciano, Paola Soccorso

Sustainable Finance: The Conceptual Framework

Chapter 2. Sustainable Growth in the European Framework and the Role of Finance
Finance has been increasingly acknowledged as key to sustainable development as it can efficiently and effectively channel resources towards sustainable activities. However, conditions for this to happen are not met yet. Lack of homogeneity in terminology and definitions translates into lack of comparability of sustainability-related disclosures and investment options. The assessment of non-financial risks and performances is impaired by little sustainability-related information. Metrics and analytical tools such as scenario analysis are still underdeveloped. Short-termism underpinning preferences and choices of economic agents hinder integration of sustainability into decision-making processes. The ambitious program of reforms undertaken by the European Union also with respect to financial legislation aims to address the above-mentioned issues and promotes a new conceptual framework enabling the development of sustainable finance.
Lucia Alessi, Claudia Guagliano, Nadia Linciano, Paola Soccorso
Chapter 3. Information as a Driver of Sustainable Finance
The development of sustainable finance builds on an efficient ecosystem of sustainability-related information. The incorporation into market prices of sustainability-related risks and opportunities is essential to efficiently channel resources to sustainable projects and to mitigate the risk of abrupt repricing of financial assets exposed to climate changes as well as the risk of a misvaluation of sustainable assets. To this end, availability of high-quality data and information is fundamental. However, this is only a necessary although not a sufficient precondition, as markets seem to be still unable to correctly price sustainability regardless of the information available. It is therefore key to understand the roots of market inefficiencies and whether they can be removed with adequate policy actions, starting from a reflection on the need to switch to an asset pricing paradigm alternative to the efficient market hypothesis.
Claudia Guagliano, Nadia Linciano, Paola Soccorso

The Information as a Trigger: Market Failures and Regulatory Issues

Chapter 4. Corporate Disclosure
In this chapter, we aim at exploring the corporate disclosure landscape as non-financial information becomes increasingly paramount. We start by summarising the recent evolutions in the unfolding scenario of non-financial reporting and ESG disclosure. Then, we reflect on two important recent developments that have impacted the European corporate disclosure landscape, namely, the Non-Financial Reporting Directive and the revised Shareholder Rights Directive. Looking at the main pillars of ESG disclosures under the existing legislation, we have been trying to adopt a cross-sectoral approach to bridge the gaps between different legislative sources and the related disclosures. Consistent, relevant, and standardised ESG disclosures are of utmost importance to ensure a smooth and quick transition towards improved market practice.
Cristiano Busco, Alessandro D’Eri, Valerio Novembre
Chapter 5. Third Parties Information
The chapter covers the issue of Non-Financial information (NFI) under different perspectives. Starting from the eugenics of NFI, useful to clarify the difference among different typologies of NFI (e.g., ESG scorings, ratings, and opinions), moving to the business models behind the ESG data sourcing, up to the potential use and significance of ESG scoring and ratings. Supported by a literature review, the chapter is useful to scholars, professionals, and policymakers willing to better understand which kind of NFI they need and for which purpose, showing the road ahead to improve the reliability and comparability of NFI, as well as the integration between financial and non-financial accounting frameworks.
Mario La Torre, EscrigOlmedo Elena, Mavie Cardi, Jacopo Schettini Gherardini
Chapter 6. ESG Factors in the Investment Process
The objective of the contribution is the analysis of how ESG factors are affecting the decision-making process of institutional investors. To that end, the key drivers underlying the broad-based shift towards sustainable investments and the main sustainable strategies are considered and a picture of ESG fund market trends is provided. Then the contribution moves on to sift, from a regulatory point of view, the amendments to the legal framework aiming at integrating ESG factors in management companies’ decision-making process as well as at spotting the distinctive features of ESG products. The conclusions are focused on the challenges the institutional investors are facing: the real ESG impact of the managed portfolio and how this is intertwined with the limitations of ESG ratings.
Giovanna Frati, Julien Mazzacurati, Barbara Alemanni
Chapter 7. Retail Investors’ Attitude and Preferences and Sustainable Investing Regulation
Sustainable investments have been gathering more and more attention over the years and, according to the already mentioned GSIA estimates (GSIA, 2020; see also Chapter 2), at the start of 2020 global sustainable investments reached $35.3 trillion, representing a 36% increase in two years and 2.8 times the outstanding amount in 2012.
Barbara Alemanni

Current Developments in the European Regulatory Framework

Chapter 8. Financial Regulation for Sustainable Finance in the European Landscape
This chapter reviews and discusses the initiatives undertaken by the European Commission (EC) and the European Supervisory Authorities (EBA, ESMA and EIOPA) in the field of sustainable finance. It outlines the EC European Action Plan for financing sustainable growth, describing its rationale and the implementing measures taken so far, with a focus on the EU Taxonomy for sustainable activities. With respect to corporate sustainability-related information, it provides a summary of relevant EU legislation, affecting both non-financial and financial corporations. It also describes the EC Strategy for financing the transition to a sustainable economy, which will take existing actions forward and provide the needed policy tools to ensure a green recovery from the impact of the pandemic. It concludes with some reflections on how scientific research can support the development of science-based legislation in the area of sustainable finance and help policymakers to overcome the main challenges.
Lucia Alessi, Barbara Alemanni, Giovanna Frati
Chapter 9. Future Perspectives on Sustainable Corporate Governance and Disclosures
In this chapter, we aim at exploring the forthcoming changes which will affect the way in which sustainability reporting and corporate governance will be shaped by new initiatives by the European Commission to enable the financial system to embrace a more sustainable path. In particular, we address the key areas of the Commission’s proposal for a Corporate Sustainability Reporting Directive (CSRD) which aims at addressing the main shortcomings identified in the application of the current Non-Financial Reporting Directive (NFRD). We then address the current debate around the EU Sustainable Corporate Governance initiative, including its background and the possible actions that may follow from this initiative whose wide scope is likely to require both legislative and non-legislative measures.
Alessandro D’Eri, Valerio Novembre
Chapter 10. Transparency and Standardization of Financial Products Information
The information needs of retail investors can be posited as the ultimate driver of the transparency measures put in place by the EU Action Plan on Sustainable Finance. As stated on the launch of the plan in 2018, “EU citizens expect sustainable funds to enable them to have a positive impact on the economy; but they lack the concrete tools to identify corresponding investment products”. A review of the main regulatory tools developed by the Commission to address gaps in the sustainability information available to retail investors, this chapter assesses the completeness and usefulness of the solutions that were eventually delivered—from ESG and Taxonomy product disclosures to the EU Green Bond Standard.
Sara Lovisolo
Chapter 11. Conclusions
The health emergency has reawakened and strengthened the attention of policymakers to sustainable development, reaffirming the urgency of economic policies aimed at mainstreaming economic, environmental and social dimensions to promote a resilient system (McDaniels, J. (2020). Implications of the COVID-19 Pandemic for Global Sustainable Finance. Retrieved from https://​unepinquiry.​org/​publication/​implications-of-the-covid-19-pandemic-for-global-sustainable-finance/​).
Claudia Guagliano, Nadia Linciano, Paola Soccorso
Information as a Driver of Sustainable Finance
herausgegeben von
Nadia Linciano
Paola Soccorso
Claudia Guagliano
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