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.
Author(s): Nadia Linciano, Paola Soccorso, Claudia Guagliano
Series: Palgrave Studies in Impact Finance
Publisher: Palgrave Macmillan
Year: 2022
Language: English
Pages: 348
City: Cham
Foreword by Carmine Di Noia
Foreword by Mario Nava
Contents
Notes on Contributors
List of Figures
List of Tables
List of Boxes
1 Introduction
Part I Sustainable Finance: The Conceptual Framework
2 Sustainable Growth in the European Framework and the Role of Finance
Introduction
Conceptual Framework
Sustainable Development and the ESG Factors
The Concept of Sustainable Finance
The Concept of Sustainable Investing
The EU Holistic Approach to Sustainable Development
Policy Actions in the Framework of the EU Green Deal
A Sustainable Recovery
Recent Developments in ESG Markets
Conclusions
References
3 Information as a Driver of Sustainable Finance
Introduction
The Ecosystem of Sustainable Information
Market Prices and ESG Factors
Market Pricing of ESG Factors
Market Pricing of Risks and Opportunities of Climate Changes
Why Markets May Fail in Pricing ESG Factors
From the Efficient Market Hypothesis (EMH) to the Adaptive Market Hypothesis (AMH)
References
Part II The Information as a Trigger: Market Failures and Regulatory Issues
4 Corporate Disclosure
Introduction
The Corporate Disclosure Landscape as Non-financial Information Becomes Paramount
Companies’ Necessity to Communicate the Building Blocks of Their Licence to Operate
The Unfolding Scenario of Non-financial Reporting and ESG Disclosure
Towards a Simplified Scenario of ESG and Value Creation Disclosure: The IIRC-SASB Merger
The Non-financial Reporting Directive
The Scope of the NFRD
Non-financial Reporting in the Context of Periodic Financial Information
The Concept of Materiality in the Non-financial Statement and Its Application
The Requirements to Disclose Non-financial Matters and Their Application
Corporate Disclosure and Long-Term Shareholder Engagement: The Review of the Shareholder Rights Directive and the New Provisions in the Area of Directors’ Remuneration
Directors’ Remuneration: The Rationale for Policy Measures
New SRD II Provisions in the Area of Directors’ Remuneration
Final Remarks Concerning ESG Corporate Disclosures
References
5 Third Parties Information
Eugenics of Non-financial Information
The Double Genesis of Non-financial Information
As for the Reliability of Primary Information
As for the Business Model Adopted for the Production of Non-financial Information
As for the Correct Use of Non-financial Information
As for the Significance of an ESG Rating Industry
Third Parties’ Non-financial Information: A Systematic Literature Review
ESG Indexes and Ratings
Sustainability Assessment Process
ESG Information and Market Reaction
Concerning the Business Model of Third Parties’ Information Providers
Investor-Pay Model vs Applicant-Pay Model in Non-financial Recommendations
The Case of Standard Ethics
Discussion: The Road to the Future Structure of the Non-financial Information Market
However, What Information Do Investors Actually Receive from ESG Rating Providers for the Decision-Making Process?
However, is the Information that Investors Are Demanding to Make Their Investment Decisions in the Current Context of Global Risks?
References
6 ESG Factors in the Investment Process
Introduction
ESG Factors and Sustainable Investing
Sustainable Investing: The Context
Sustainable Investing Strategies
ESG Fund Market Trends
The ESG Manager and the Decision-Making Process
The Decision-Making Process in the UCITS Directive and the AIFMD
The Engagement in the Investee Companies
The Asset Owner: ESG Products and the Role of the Benchmark
Management Approaches (Active vs Passive) and Investment Policy
The Peculiarities of ESG Products
The Benchmark Regulation and Its Amendments to Include Climate-Related Benchmarks
The Main Challenges
ESG Funds
ESG Ratings and ESG Funds
References
7 Retail Investors’ Attitude and Preferences and Sustainable Investing Regulation
Introduction
Retail Investor Attitude Towards Sustainable Investments
Motivation of Responsible Investing
Individual Characteristics
The Gap Between Self-Reported Attitude and Actual Behaviour
EU Regulation and Retail Investors’ Sustainable Investments
A General Framework of Retail Investors’ Regulation
Targeting Retail Investors to ESG Investments in the New EU Regulation
Concluding Remarks
References
Part III Current Developments in the European Regulatory Framework
8 Financial Regulation for Sustainable Finance in the European Landscape
Introduction
The 2018 Sustainable Finance Action Plan
Reorienting Capital Flows Towards a More Sustainable Economy
Mainstreaming Sustainability into Risk Management
Fostering Transparency and Long-Termism
The EU Taxonomy for Sustainable Activities—The Need for a Common Definition
Structure and Features of the EU Taxonomy
Uses of the EU Taxonomy
From the Taxonomy to the Taxonomies?
Sustainability-Related Disclosures
The New Corporate Sustainability Reporting Directive (CSRD)
The Sustainable Finance Disclosure Regulation (SFDR)
The Taxonomy Regulation (TR)
The Capital Requirements Regulation (CRR) and the Investment Firms Regulation (IFR)
The European Single Access Point (ESAP)
The Delegated Legislation Integrating Sustainability into UCITS Directive and AIFMD
The Strategy for Financing the Transition to a Sustainable Economy
Science-Based Regulation
References
9 Future Perspectives on Sustainable Corporate Governance and Disclosures
Corporate Disclosures
The Scope of Application of the Non-financial Reporting Requirements
The Location of the Non-financial Information
Materiality and Standardisation
Digitisation of the Sustainability Reporting
Enforcement and Assurance
Corporate Governance
From Corporate Disclosures to Governance: The Sustainable Corporate Governance Initiative
The Analytical Work Behind the Sustainable Corporate Governance Initiative
The Study on Directors’ Duties
The Study on Due Diligence Obligations
EU Policy Actions Under the Sustainable Corporate Governance Initiative
References
10 Transparency and Standardization of Financial Products Information
Introduction
The Retail Use-Case for Sustainability Information
The EU Sustainable Finance Retail Strategy as Part of the EU Action Plan
The Delegated Regulation to MiFID II on the Integration of ESG Considerations in the Suitability Test
Implications of the Delegated Regulation
Overview of the EU Toolbox Supporting the Retail Use-Case
Standardization of Product Disclosures Under the SFDR
ESG Disclosures for Benchmarks Under the Benchmarks Regulation
EU Climate Benchmarks
Product-Level Taxonomy Disclosures
The EU Ecolabel for Financial Products
The EU Green Bond Standard
Case Study: The Draft Templates for Product Disclosures Under the SFDR
Concluding Remarks
References
11 Conclusions
References
Postface
Index
