Sustainable finance: A work in progress

There are lots of sustainable finance files moving through the EU legislative process at the moment, from regulating ESG rating providers to strengthening the prudential regime for insurance and reinsurance undertakings. Finance Watch has put together a list of all the sustainable finance topics we’ll be following over the coming months, plus the members of our team responsible for each and our latest reports/statements.

We hope that this summary will help journalists writing on sustainable finance.


Status: A Commission proposal was published on 13 June 2023. It is currently being discussed by the European Parliament and the Council of the EU, with the regulation expected to be adopted in the current legislative mandate.

Finance Watch perspective: The objectives of ESG ratings need to be clarified, if anything, to pacify the debate around ESG investing. If it’s unclear to investors and stakeholders why a company has a high ESG rating, they can feel they’re unfairly being asked to take this information on faith rather than fact. To end accusations of woke capitalism on one side and greenwashing on the other, it’s essential to start with better rules and supervision of ESG ratings.

Finance Watch contact: Thierry Philipponnat, Chief Economist ( and Vincent Vandeloise, Senior Research & Advocacy Officer (


Status: The European Parliament’s Committee on Economic and Monetary Affairs (ECON) agreed its position on the Solvency II reforms on 18 July 2023. The Parliament is expected to vote on this in Plenary on 11 September. Trilogue negotiations will follow, with the view to reaching a final agreement between the co-legislators before the end of the current legislative mandate.

Finance Watch perspective: The Parliament’s position recognises the need to address ESG risks, including through transition planning and supervisory oversight of the ESG risk management. Yet, more work needs to be done to ensure capital requirements account for climate-related risks, such as the risks of fossil fuel exposures which are certain to lose their value in the sustainable transition. Investments in fossil fuels are incompatible with the insurers long-term view on risk.

Finance Watch contact: Paul Fox, Senior Research & Advocacy Officer (


Status: Political trilogues concluded with an agreement on 26 June 2023, but technical trilogues continue. Discussions will relaunch between the co-legislators this September. In the meantime, it’s worth noting that the Basel Committee on Banking Supervision launched a consultation on the revised core principles for effective banking supervision with the objective of reflecting supervisory and regulatory developments, structural changes affecting the banking system, including climate-related risks.

Finance Watch perspective: Finance Watch deeply regrets the co-legislators’ failure to adopt higher capital requirements for fossil fuel exposures (one-for-one rule) to ensure banks have sufficient buffers to cover the losses of fossil fuel-related assets becoming stranded in the course of transition. The rule would not impact sound European banks, but would safeguard against reckless risk-taking and help protect citizens and taxpayers from a climate-driven financial crisis. Nevertheless, Finance Watch welcomes provisions on the mandatory and supervised transition plans for banks, as well as strengthening of the European Banking Authority’s (EBA) mandate on dedicated prudential treatment of climate-related risk.

Finance Watch advocates for the timely and full implementation of the Basel III agreements, as well as adjusting bank capital rules to account for climate-related risk of fossil financing. Disappointingly, due to fierce pressure from the financial industry, neither of these have made it into the political agreement on CRR/D. By watering down the provisions of the Basel III standards the European Union puts the effectiveness of the Basel process and global rule-making for the financial sector at risk.

Finance Watch contact: Julia Symon, Head of Research & Advocacy (


Status: The ESRS (also referred to as the delegated acts of the CSRD) were published by the European Commission on 31 July 2023 and will now be subject to scrutiny by the European Parliament and the Council.

Finance Watch perspective: Finance Watch welcomes the adoption of the long-awaited ESRS but regrets that the concerns shared by civil society and the financial sector during the consultation remain generally unaddressed. Very few changes were made to the version of the ESRS published for consultation on 9 June 2023: Reporting of climate data subject to materiality assessment (rather than mandatory), voluntary disclosures and additional phase in remain.

On a positive note, there are additional transparency requirements in case a reporting company considers climate as being non-material, and non-material data points required under the Sustainable Finance Disclosure Regulation (SFDR) and the Capital Requirements Regulation (CRR) must be clearly stated.

Finance Watch still emphasises that any deviation from the European Financial Reporting Advisory Group (EFRAG) compromise from November 2022 is not welcome and that too much reliance is being put on the quality of the materiality assessment that will be performed.

Finance Watch contact: Vincent Vandeloise, Senior Research & Advocacy Officer (


Status: The European Parliament voted on the CSDDD during the plenary sitting in Brussels on 1 June 2023. Trilogues are expected to continue in September.

Finance Watch perspective: The inclusion of financial services, including investment activities, in scope of the Directive in the European Parliament text is key to tackling human rights violations and adverse environmental impacts. Adequate sector-specific guidance for the value chain of financial services is still needed and some concessions have been made in favour of industry, but the European Parliament’s position is a good basis on which to kick off discussions with the Council and the Commission.

Finance Watch contact: Vincent Vandeloise, Senior Research & Advocacy Officer (


Status: The European Commission is preparing to launch a public consultation in autumn to seek feedback from stakeholders with a possible legislative review of the directive in the next mandate.

In the meantime, the three European supervisors conducted a consultation to review and revise the SFDR Regulatory Technical Standards (RTS – Delegated Regulation (EU) 2022/1288 of 6 April 2022 supplementing Regulation (EU) 2019/2088) specifying the details of the content, presentation of the information and/or methodologies in relation to i) the principle of ‘do no significant harm’, ii) sustainability indicators and adverse sustainability impacts, iii) the promotion of environmental or social characteristics and sustainable investment objectives in pre-contractual documents, on websites and in periodic reports. The consultation closed on 4 July 2023.

Finance Watch perspective: Finance Watch would like to see a deep review of the SFDR regulation to consider legislative rules that have recently emerged and to close the door to greenwashing practices. In particular, the concepts tied to positive and adverse impacts outlined by SFDR should be clarified with quantitative thresholds and exclusions. The classification of financial products should also undergo revision to prevent its misleading assimilation to a label, unless the products adhere to minimum sustainability criteria.

Finance Watch contact: Vincent Vandeloise, Senior Research & Advocacy Officer (


Status: The Environmental Taxonomy: On 13 June 2023, the European Commission published the so-called TAXO4 delegated acts covering the list of economic activities to be considered as taxonomy-aligned for the four remaining environmental objectives. The Commission also put forward updates to the existing climate delegated acts. Both elements will now need to be endorsed by the European Parliament and the Council.

The Social Taxonomy: The Platform on Sustainable Finance published its final report on the Social Taxonomy on 28 February 2022. The EU Taxonomy Regulation mandated the European Commission to publish a report by 31 December 2021 describing the provisions that would be required to extend the scope of the Regulation beyond environmentally sustainable economic activities. To date, the European Commission has not published such a report.

Finance Watch perspective: 

The Environmental Taxonomy: The Taxonomy is the first and necessary step towards the creation of an EU financial legislative framework that aims to reorient capital flows towards a more sustainable economy. Positive aspects of the Environmental Taxonomy include its broad scope, separate disclosure for sustainable, transition and enabling activities, the obligation for large companies to disclose their share of turnover, investments and expenditures that are Taxonomy compliant and finally, the review clause on ex-post assessment of the effectiveness of the Taxonomy. However, Finance Watch is critical of the inclusion of nuclear and gas under the Taxonomy Complementary Climate Delegated Act.

The Social Taxonomy: As the EU’s economy accelerates its ‘green’ transition, support for activities that are socially sustainable is critical to ensure that this same transition is also fair and socially inclusive. A social taxonomy would also reinforce existing EU policy such as the European Pillar of Social Rights, the Equality Strategies, the initiative to eradicate child labour or forced labour. Finally, it would contribute to attaining the Sustainable Development Goals just as the Environmental Taxonomy contributes to the implementation of the Paris Agreement on Climate.

Finance Watch contact: Thierry Philipponnat, Chief Economist (

Let us know what are the financial topics you are most interested in

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