Great expectations of sustainable finance A critical analysis of EU sustainable finance strategy and sustainable finance regulation

The adoption, in 2015, of both the Sustainable Development Goals and the Paris Agreement focused attention on a fundamental rethinking of many aspects of society. Indeed, the European Commission’s 2018 Sustainable Finance Action Plan called for a comprehensive shift in how the financial system works. This research explores the expectations of a sustainable financial system and critically assesses the extent to which the EU’s sustainable finance strategy, and the regulations adopted pursuant to that strategy, align with, exceed, or fall short of such expectations.
The research makes three principal contributions. First, it develops an assessment framework for the critical analysis of sustainable finance strategy and regulation. Second, it presents a series of critical analyses covering the 2018 Action Plan, the Taxonomy Regulation, the SFDR and a series of amendments to existing capital markets regulations. Finally, the research offers seven concrete suggestions as to how the EU could develop a sustainable finance strategy that is more coherent, transparent, and better aligned with expectations of a sustainable financial system.
In particular, it is suggested that (i) more realistic intentions are communicated, (ii) inclusiveness is better safe-guarded, (iii) a stronger conception of sustainability is adopted, (iv) greater transparency is provided with respect to the contribution of the financial system to both sustainability goals and inequitable outcomes, (v) financial regulation be reclaimed from the economic rationale, (vi) a regulatory architecture based on free-choice may be insufficient to reposition the financial system towards sustainability, and that (vii) methods be developed to manage conflicts of interest arising as a result of the co-regulatory approach adopted pursuant to EU sustainable finance regulation.
The research primarily employs a critical legal studies methodology. It also, however, draws on the methodologies and work of scholars in the fields of rhetorical analysis, historical narrative analysis, systems thinking, law and economics and utilises Kuhn’s theory of paradigm shifts. The study illustrates how academic research, through the methodical construction and application of a critical assessment framework, can contribute to a better understanding of and, as necessary, the realignment of policy.