Sustainable Finance: EU’s Regulatory Framework & ESG Factors

With this blog post, Evdokia Pitsillidou, an instructor at the institute, delves into the importance of Sustainable Finance, exploring the ESG factors, Greenwashing, the Regulatory Framework as it currently stands and further important information about sustainability. What is more, a complete online course is offered through the IforPE platform, titled Sustainable Finance: Regulatory Framework & ESG Factors in 2024.

At the end of this blog post, you will find detailed information about the valuable knowledge and competencies acquired upon course completion and how they contribute to ensuring the successful implementation of all sustainable strategies and procedures.

ESG Factors

ESG factors are criteria used to evaluate the sustainability and societal impact of business activities, particularly those financed by credit institutions, financial product manufacturers, and financial advisers. These factors play a crucial role in determining the long-term financial performance and risks associated with investments. ESG factors are categorized into three primary pillars:

• Environmental: This area addresses the impact a company or investment has on the environment, including energy consumption, water usage and waste management.
• Social: This category involves the collision of business activities on society and communities, encompassing child labour, human rights and discrimination.
• Governance: This pillar deals with governance-related issues such as corruption and bribery, transparency and disclosure, board structure and diversity

Greenwashing in Sustainable Finance

Greenwashing in sustainable finance refers to the practice of companies or financial institutions misrepresenting their ESG efforts or credentials to appear more sustainable than they actually are. This can involve exaggerating the positive impact of their products, services, or investments on the environment, selectively disclosing favourable information, or omitting negative aspects to present a falsely eco-friendly reputation. The EU authorities have been promoting transparency of ESG objectives, risks and characteristics in order to tackle greenwashing.


Sustainable Finance Regulatory Framework
The sustainable finance regulatory framework is designed to foster the integration of ESG considerations into the financial system. This framework aims to promote investments that contribute to sustainable development by establishing clear guidelines and standards for financial institutions, product manufacturers, and advisors. It seeks to enhance transparency, mitigate financial risks associated with ESG factors, and ensure that capital flows towards sustainable economic activities. The below provide a robust foundation to achieve that:

• EU Green Deal
• Sustainable Finance Disclosure Regulation (SFDR)
• EU Taxonomy Regulation
• Non-Financial Reporting Directive (NFRD)
• Corporate Sustainability Reporting Directive (CSRD)
• ESG Rating Activities Regulation
• Benchmark Regulation

The above regulations stipulate that sustainability considerations should not only be an add on but integrated into the core risk management and decision-making processes.