The shift to a sustainable economy is one of the major societal challenges of the coming decades. Sustainability encompasses various goals in the three central ESG areas. The abbreviation ESG stands for 'Environmental', 'Social' and 'Governance'. The focus is currently on the 'E' in ESG, i.e., climate and other environmental goals. One of the main goals of the policy is to redirect financial flows towards a sustainable economy. At the centre of sustainable finance is the financial sector.
But what exactly is meant by 'Sustainable Finance'? Sustainable Finance includes transparency regulations for a sustainable financial system. However, such regulations are not limited to the financial sector but also apply to the real economy. The financial sector depends on ESG information from the real economy. The transparency regulations consist primarily of reporting and disclosure obligations. In order to comply with the transparency regulations, companies should integrate sustainability goals into their governance structures and internal management processes
There is a broad political consensus on reconciling economic and social interests in the long term. The political debate on sustainability goals goes back a long way. At the global level, the following conventions are of central importance:
- the UN 2030 Agenda with 17 Sustainable Development Goals (SDGs) from the end of September 2015 and
- the UN Paris Climate Change Agreement of December 2015 with the goal of limiting the global temperature increase to 1.5° C by 2100 above pre-industrial levels.
Globally, there is general agreement on the desire to promote these sustainability goals in the three key ESG areas. This is to be done primarily through market transparency (see II. Regulation). However, there is no consensus on specific standards. In the course of the European sustainability regulation, Sustainable Finance should at least establish a uniform standard throughout Europe.
This would offer the following opportunities:
- Steering the high global market dynamics in the direction of sustainability-oriented finance
- Accelerating the financing of the transformation towards a more sustainable economy
- Minimising the administrative burden on companies in complying with transparency regulations