Current financial mechanisms continue to prioritize profits over sustainability, and as a consequence, the majority of current capital continues to go to corporations and industries that are incompatible with a “net-zero” world.
Thanks to public pressure, the financial sector has begun to develop solutions that should correspond to this goal: financing that truly serves the Earth and people. The variety of products developed by the sector falls substantially under the criteria of ‘sustainable finance.’
Unfortunately, the ‘Babel’ of regulations, aggressive lobbying, excessive greenwashing, and a lack of understanding of conservation principles have curtailed financial flows or labeled unpleasant initiatives as ‘green.’
Sustainable finance is a thriving industry, and the term “sustainability” will become commonplace in capital markets. Sustainable banking will lose its prefix in 20 years when rules and market rules limit ‘unsustainable’ operations to a niche favored by secretive, quasi-illegal participants.
Unfortunately, this could be a hollow win for the ecological community. To date, up to 25% of global AUM claims to be ‘sustainable,’ but a deeper examination reveals that only a small part of these assets fund truly sustainability efforts.
The EU is working to address these three issues and reinvent its sustainable finance industry. This admirable goal is a true political puzzle with numerous complex elements.
The EU taxonomy
Through the creation of TSC, the fundamental purpose of the taxonomy is to provide a single, definitive definition of what is to be called environmentally sustainable.
A dedicated PSF composed of a diverse range of experts and stakeholders leads the TSC defining process. This covers, for example, academia, industry, civil society, and so on. We are members of the PSF, and we are actively working to create a really lasting, science-based European taxonomy.
Suppose Europe wants to meet its ambitious Green Deal obligations and achieve carbon neutrality by 2050. In that case, unified norms and legal monitoring for the ESG rating will be critical.
Currently, a variety of ESG rating agencies generate ESG ratings. These evaluations frequently range significantly from providing a solid, undeniable assessment.
EU President Von der Leyen has announced the establishment of an EU GBS. The new standard will be finalized in 2021, and it is critical that it is completely related to the TSC of the Taxonomy.