According to the European Commission, private investors play a crucial role in covering the necessary investments for the planned transformation. So far, however, the corresponding investments have been too low (as of 2021). One reason for this is a lack of signals or clear definitions of which investments specifically support European climate protection goals. In order to direct capital flows towards sustainable investments, manage financial risks arising from climate change, resource use, environmental degradation, and social issues, and to promote transparency and long-term economic activity, the EU Commission already developed a plan in 2018 to strengthen sustainable finance - the Action Plan: Financing Sustainable Growth. This includes, but is not limited to:
- The establishment of a clear and detailed EU classification system for sustainable activities (taxonomy) to create a common language for all stakeholders in the financial system. In other words, this relates to criteria and standards which, on the one hand, enable investors to assess the actual sustainability of the products advertised and, on the other hand, are used by the real economy as a basis for reporting to the financial sector.
- The introduction of measures to clarify the obligations of asset managers and institutional investors with regard to sustainability.
- Strengthening the transparency of companies through disclosure regarding their environmental, social and governance policies (ESG) and sustainability-related data.
- Promoting sustainable corporate governance and a focus on the long-term nature of activities on the capital markets, as well as encouraging investment in sustainable projects.
The EU taxonomy should be highlighted as a key building block, which defines requirements for sustainable economic activities. The EU Taxonomy Regulation is linked to of the Sustainable Finance Disclosure Regulation (SFDR) and the non-financial reporting directive for companies (CSRD). The legal framework of the EU addresses financial market participants, including providers of investment funds, asset managers and providers of occupational pension plans, and companies with an obligation to publish non-financial statements.