Potential economic impact of European sustainable finance

Summary:

Sustainable finance refers to the process of taking environmental, social and governance (ESG) considerations into account when making investment decisions in the financial sector. This could lead to investors channelling more investment into the transition to a climate-neutral, climate-resilient, resource-efficient and fair economy with a high level of quality governance requirements. Sustainable finance therefore has a key role to play in delivering on the policy objectives under the European Green Deal. In that respect, the EU has made significant progress in recent years, notably with the adoption of the sustainable finance action plan in 2018, the renewed strategy for financing the transition to a sustainable economy in 2021, and with a series of legislative proposals. As a result, the EU is well placed in this area, with an estimated €6.6 trillion of ESG assets under management in 2024, representing 38 % of total assets under management in the EU (€17.2 trillion). However, the relationship between sustainability efforts, a country's economic growth and the impact on business and financial performance remains a matter for debate. Recent research suggests that countries and businesses can pursue sustainable development without compromising their economic prosperity, although this is dependent on having the right institutional and regulatory framework in place. Better cooperation and harmonisation at international level is crucial to avoid unfair competition, greenwashing or an increase in administrative burdens for businesses.

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