Managing transformation requires input and support from a wide range of financial, economic and political stakeholders. As a result, private investors also have a crucial role to play in financing transformation processes. On the one hand, regulatory instruments based on the EU Sustainable Finance Action Plan developed by the European Union in 2018 should be used not only to channel capital flows into sustainable investments but also to map and price risks from climate change, resource consumption and environmental degradation, as well as social concerns in existing structures. On the other hand, transparency and long-term economic activity should be supported. Regulatory instruments include:
- The establishment of a classification system for sustainable activities (taxonomy) to provide a common language for all stakeholders involved in the financial system. This can also be used by non-financial stakeholders (in the real economy) as a basis for reporting to the financial sector.
- Strengthening the transparency of companies through disclosure regarding their environmental, social and governance policies (ESG) and sustainability-related data.
- Promoting sustainable management and focussing on long-term activities by integrating sustainability risks into existing structures, processes and models.
One key aspect is the EU taxonomy, which defines requirements for sustainable business practices. This is because both the Sustainable Finance Disclosures Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD) address the taxonomy. These European regulatory instruments oblige stakeholders – ranging from financial institutions and investment fund providers to asset managers, providers of occupational pensions and non-financial stakeholders – to classify their activities according to the EU taxonomy and disclose information.
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