Transparency is a first step to more sustainable investments, more needed

Brussels, 5 November 2018 – Finance Watch welcomes today’s vote by the European Parliament’s ECON Committee for more investment disclosure around sustainability but warns that much more is needed to shift capital with the scale and urgency required. In particular, we need environmental and energy policies that address negative externalities.

By agreeing on the European Commission’s legislative proposal for a Regulation on disclosure relating to sustainable investments and sustainability risks, the European Parliament demonstrates its commitment to supporting the EU’s sustainable finance agenda. In the proposal, asset managers and financial advisers are requested to disclose how sustainability risks are considered in the investment decision making or advisory processes and this will contribute to reducing the information asymmetries between financial actors and their clients.

Finance Watch welcomes the inclusion of specific requirements for investments targeting a sustainability objective, but warns that the wording in the agreed text is not sufficiently clear on how the concept of sustainability performance, as introduced by the ECON committee, is linked to the concept of sustainable investment, as defined in the agreed text.

Nina Lazic, Research and Advocacy Office at Finance Watch, said:

While this proposal is an important first step to make finance incorporate sustainability aspects and address information asymmetries, it is not enough to bring about the urgently-needed shift of capital from unsustainable to sustainable investments.

“As the Commission itself explained in its impact assessment,[1] the magnitude of the reoriented capital flows will depend on the level of investor interest in sustainable products. 

“This also means that in parallel to the sustainable finance initiatives, additional and more stringent environmental and energy policies need to be put in place, which should in turn lead to an adequate pricing of negative externalities and so create the economic incentives needed to re-orient capital flows.”



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The ECON Committee voted today on an agreement regarding the European Commission’s draft legislation “Disclosures relating to sustainable investments and sustainability risks”. It includes several definitions:

  1. Definition of sustainable investment

Finance Watch welcomes the definition of sustainable investment and notably the integration of the non-harm principle in the Commission’s proposal, according to which an investment to be qualified as sustainable needs to pursue one environmental, social or governance objective and should not harm any of the other objectives. We however regret that the definition of sustainable investment in the disclosure proposal does not refer to the upcoming Regulation to establish a framework to facilitate sustainable investments (taxonomy), which will constitute the basis for a common language around environmental sustainability.

It is also important to reiterate that the concept of sustainability is commonly linked to the way in which natural resources are used and in a sustainable economic system the current generations are able to meet their needs without compromising the ability of future generations to meet their own needs. In other words, a sustainable system is a system that imposes no or very few negative externalities, which typically occur in case of environmental goods. Therefore, we believe that any sustainable investment should in principle target at least one environment or social goal and that good governance should be the common practice.

  1. Definition of sustainability risk

The ECON committee has introduced the definition of sustainability risk defined as: a) the possibility that financial returns are impacted due to the financial product’s exposure to environmental, social and governance (ESG) factors and b) the possibility that the economic activity to which the financial product is exposed may have adverse environmental or social impacts. The proposed definition of the ECON committee will provide the legal certainty that was missing in the Commission’s initial proposal.


Finance Watch is fully supportive of the definition, which goes beyond the concept of pure financial risk and on the basis that this proposal is part of the sustainable finance agenda, a definition limited to the financial dimension would be certainly inconsistent with the concept of sustainability.


  1. Scope of the obligations

Finally, Finance Watch is very supportive of the ECON Committee’s amendment to the Commission proposal which makes explicit the requirement that financial market participants (including credit institutions), insurance intermediaries that provide investment advice with regard to insurance-based investment products, and financial advisers, need to have in place due diligence policies for the assessment of sustainability risk. Having in place those policies is indeed a prerequisite for the above financial actors to be able to comply with the disclosure requirements under Article 4.


For further information, please refer to Finance Watch’s response to the European Commission consultation on the legal duties of institutional investors and asset managers, published in January 2018, as well as its “Blueprint on Sustainable Finance: Building a financial system for a sustainable future” from December 2017.


[1] Commission Staff Working Document, Executive Summary of the Impact Assessment, SWD/2018/264 final  (24.05.2018), page 34; online available at


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