Revue Européenne du Droit
Will Europe Set the Sustainability Standard Worldwide?
Issue #3


Issue #3


Professor Dr. Danny Busch

La Revue européenne du droit, December 2021, n°3


The European Commission has pointed out that we are increasingly confronted by the consequences of climate change and resource depletion. It therefore wants more investment in ‘green’ companies and products. In its initial Sustainable Finance Action Plan (SFAP) of March 2018, the Commission states that as the financial sector acts as an intermediary between users and providers of capital, it has a key role to play in this green transition 1 . The SFAP is an integral part of the Capital Markets Union (CMU) Action Plan 2 and must also be seen in conjunction with the broader European climate plans (the Green Deal and the European Climate Law that forms part of it) 3 .

The SFAP has the following aims: (i) reorient capital flows towards sustainable investment in order to achieve sustainable and inclusive growth; (ii) manage financial risks stemming from climate change, resource depletion, environmental degradation and social issues; and (iii) foster transparency and long-termism in financial and economic activity 4 .

The action plan translates these aims into ten concrete measures: (1) establish an EU classification system (taxonomy) for sustainable activities; (2) create standards and labels for green financial products; (3) foster investments in sustainable projects; (4) incorporate sustainability when providing financial advice; (5) develop sustainability benchmarks; (6) better integrate sustainability in credit ratings and market research; (7) clarify the duties of institutional investors and asset managers; (8) incorporate sustainability in prudential requirements for financial institutions such as banks and insurers; (9) strengthen sustainability disclosure, both for investors and for financial supervisors, for example through better integration of sustainability in accounting rule-making; (10) foster sustainable corporate governance and attenuate short-termism in capital markets 5 . In this article I will focus on some of the core elements of the SFAP.

    Taxonomy Regulation

When is a product or business ‘green’? That is something we must agree on first. After all, if we in Europe do not have a shared understanding of what is ecologically sustainable, how can we expect to arrange for the supply and demand of green capital to be better matched in Europe? In such a situation, there is the ever-present danger of confusion about terms and even plain deception because activities are presented as greener than they actually are (‘greenwashing’). So, it is a good thing that the Commission has decided to give top priority to establishing an EU classification system – or taxonomy – for sustainable activities (Action 1). Nor has Brussels wasted any time, because the Taxonomy Regulation had already been adopted by 18 June 2020 6

The Taxonomy Regulation contains uniform criteria for determining whether an economic activity qualifies as environmentally sustainable. The Regulation identifies six environmental objectives: (a) climate change mitigation; (b) climate change adaptation; (c) the sustainable use and protection of water and marine resources; (d) the transition to a circular economy; (e) pollution prevention and control; (f) the protection and restoration of biodiversity and ecosystems 7 . An activity qualifies as environmentally sustainable where it contributes substantially to one or more of the environmental objectives and does not significantly harm any of the other environmental objectives 8 .

But that’s not sufficient in itself. Based on technical advice from experts, the Commission is currently in the process of drawing up further rules (Level 2 legislation) which identify the actual activities that can be classified as sustainable. This concerns six series of sustainable activities, each series corresponding to one of the six environmental objectives mentioned above. The first two series were submitted to the public for consultation in November 2020 and correspond to the environmental objectives referred to at (a) and (b) above 9 . The Taxonomy Regulation will come into effect in phases: the first two environmental objectives on 1 January 2022 and the other four on 1 January 2023 10 . The further rules are bound to be a source of friction. A while ago it was apparent from a leaked proposal that the European Commission was considering classifying state-of-the-art natural gas power stations as green undertakings to make the funding of new power plants more attractive, much to the astonishment of scientists and environmental organisations 11 . And what about nuclear energy? A nuclear power plant may not emit greenhouse gases, but it does produce nuclear waste 12 .

    Sustainable Finance Disclosure Regulation (SFDR)

An important step will be determining what activities are environmentally sustainable (see section 2, above). Once this has been accomplished, the next step will be to arrange for financial intermediaries (such as asset managers and advisers) to integrate sustainability considerations into their investment policy and advice, and to provide transparency to the investing public about the extent to which they do this (Actions 7 and 9). Many financial intermediaries already did this to a greater or lesser extent, because there has been considerable demand for sustainable investments for some time, but until recently they did not do so on the basis of harmonised rules at European level. This was changed by the new Sustainable Finance Disclosure Regulation (SFDR) on 10 March 2021, when most of its rules became applicable 13 . Incidentally, the term sustainability has a broader meaning in the SFDR than in the Taxonomy Regulation. Under the SFDR a sustainable investment covers all three ‘ESG’ categories (i.e., environmental, social and good governance objectives), whereas the Taxonomy Regulation relates only to environmental sustainability (i.e., the ‘E’ factor) 14 .

Whatever the case, the SFDR is an important step forward, for harmonised sustainability transparency standards are a dire necessity; indeed, the alternative is not workable. After all, divergent national rules and market practices (i) make it very difficult to compare different financial products, (ii) create an uneven playing field for such products and for distribution channels, and (iii) erect additional barriers within the internal market. This in turn leads to confusion for investors and is, at worst, plain misleading because financial intermediaries promote their investments as sustainable when in reality they are not (or much less so) (greenwashing) 15 . The SFDR requires financial intermediaries to provide sustainability transparency on their website, in periodic reports, in promotional material and in pre-contractual information (at both entity level and product level).

Furthermore, one must distinguish between two key concepts: (i) ‘sustainability risks’, and (ii) ‘sustainable investments’. ‘Sustainability risk’ is defined as an environmental, social or governance event that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment 16 . A ‘sustainable investment’, on the other hand, is an investment in an economic activity that contributes to an environmental or social objective, always provided (a) that the investments do not significantly harm any of the other environmental and social objectives, and (b) that the investee companies follow good governance practices 17 .

Further key concepts are ‘dark green’ and ‘light green’ products, and even ‘grey’ products. Green products either have sustainable investment as their objective (dark green) or they merely aim to promote sustainable investment (light green) 18 . A distinction that is in my opinion bound to cause confusion in the market. Grey products neither promote sustainable investment nor have it as their objective, but they are nevertheless caught by the SFDR in the sense that grey products – just like green products – involve reporting on sustainability risks 19 .

But once again, this is not sufficient in itself. Most of the SFDR rules still have to be implemented at a practical level (Level 2 rules). The three European Supervisory Authorities (ESAs) take the lead in drafting these rules, but it is the Commission that adopts them and thus has the final say 20 . Although the drafting work at the ESAs was delayed by the coronavirus crisis, this was remarkably not seen by the European Commission as a reason for recommending that the SFDR itself become applicable at a later date. It was not until 4 February 2021 that the ESAs published their final drafts for the Level 2 rules 21 . The Commission was no longer able to adopt these rules before the SFDR became applicable on 10 March 2021. As an emergency measure, the joint ESAs therefore suggested to the national supervisors on 25 February 2021 that they encourage financial intermediaries to comply with the Level 2 rules anyway 22 . To add to the confusion, the three ESAs published a consultation document on 15 March 2021 which again provided for a change to what were termed the ‘final’ drafts of the Level 2 rules published on 4 February 2021 23 . This procedure certainly did not win any prizes for planning, because financial intermediaries hardly had any time to prepare 24 .

    Reliable sustainability-related company information

On reflection, how do financial intermediaries actually get reliable sustainability-related information about the companies in which they invest? The companies themselves will often not have that information available at this early stage. 

First of all, there is Action 1 of the CMU Action Plan 2020: the Commission undertakes to propose the setting-up of an EU-wide platform (European single access point / ESAP) to provide investors with ‘seamless access’ to financial and sustainability-related information on companies. 

Whatever the case, financial intermediaries are dependent for the time being on third parties who claim to have access to this sustainability-related information. But that immediately raises a further question: how can financial intermediaries be sure that these data are reliable? According to the Dutch Authority for the Financial Markets (AFM), its French counterpart Autorité des Marchés Financiers (AMF) and more recently, ESMA as well, providers of sustainability-related information must be regulated under an EU regulation and be subject to direct supervision by ESMA, just as is already the case with credit rating agencies (CRAs) under the CRA Regulation 25 .

Finally, the proposed Corporate Sustainability Reporting Directive (CSRD) will provide for a mandatory disclosure regime for both non-financial and financial companies (listed or non-listed). The idea is that this will provide financial intermediaries with the sustainability information they need to make informed sustainable investment decisions. It covers both the sustainability impact of a company’s activities as well as the business and financial risks faced by a company due to its sustainability exposures (known as the ‘double materiality’ concept) 26 . However, according to the proposal, only large untertakings are covered by the disclosure regime, and, as of 1 January 2026, most SMEs. So micro undertakings are completely out of scope 27

    Sustainable finance and the coronavirus crisis

Investors and especially the business community have been hit hard by the coronavirus crisis 28 . As less capital is available due to the current crisis, it follows that less capital is also available for making the transition to a greener society. Implementation of the climate plans is likely to be delayed by the crisis. This is particularly tragic since there may be a link between climate change and the outbreak of pandemics 29 . So a delay in the realisation of the climate plans is actually not acceptable.

However, three more positive notes may perhaps be struck. First, the coronavirus crisis may help us to realise that a video link, despite all its limitations, works quite well, and that it is not always necessary to fly around the world for face-to-face meetings. And, second, the massive state aid provided by governments to their corporate sector gives them the opportunity to impose stringent green conditions, at least in theory. And, last but not least, the EU and its member states can themselves act as providers and users of green or social financing.

Consider, for example, the funding of the EU programme for short-time working and part-time unemployment benefits (Support to mitigate Unemployment Risks in an Emergency, or SURE). SURE is being funded by raising a total of EUR 100 billion from the investing public through social bonds issued by the EU itself, which is an absolute first. By 18 May 2021, the European Commission had already raised nearly EUR 90 billion through the issuance of social bonds in six rounds under the EU SURE instrument. The issues consisted of 5, 10 and 15-year bonds. The great interest showed by investors translated into favourable bond price conditions for the EU. The funds raised were then funnelled to the Member States in the form of loans to help them directly cover the costs associated with financing national short-time working schemes and similar measures in response to the pandemic. On 27 October 2020, the EU SURE social bond was listed on the Luxembourg Green Exchange, a leading platform exclusively dedicated to sustainable securities 30 .

But there’s more. During the Special European Council of 17-21 July 2020, the European heads of government managed with great difficulty to reach an agreement on the European multiannual budget (2021-2027) and the Corona Recovery Fund. 

The European budget for 2021-2017 amounts to a total of EUR 1,074 billion. More money has been earmarked for innovation, sustainability and climate action. 30% of all budget expenditure must contribute to the European climate target 31

In essence, the agreements about the Corona Recovery Fund (the so-called Next Generation EU plan) are as follows. There will be a fund of EUR 750 billion, which will be fully financed by the issuance of bonds by the EU itself. Of the amount thus raised, a sum of 390 billion euros is for grants, and the other 360 billion euros for loans. 30% of all expenditure of the Recovery Fund must contribute to achieving the European climate target. 

Countries that receive money through the multiannual budget or from the Corona Recovery Fund (whether in the form of loans or grants) are required to apply the European values of freedom and democracy in practice. They must have independent judges. The European Parliament had tightened up the requirement that the recipients must respect the rule of law. It is common knowledge that in Poland and Hungary the independence of the judiciary is under threat, freedom of the press is at risk and the rights of LGBTI people are being curtailed. These two countries have long threatened to exercise their right of veto to block the multiannual budget and the Corona Recovery Fund, because under the new agreements they could be punished in the future if they fail to adhere to the rule of law. On 10 December 2020, they dropped their opposition after everyone had agreed to a compromise proposal put forward by Germany 32 .

This means that the EU itself will place a sum of at least EUR 225 billion in green bonds to finance the Corona Recovery Fund / Next Generation EU plan and will funnel the money raised in this way to green investments in the form of a grant or loan. Moreover, under the multiannual budget an amount of at least EUR 322.2 billion will go to green projects over the next seven years. It is hoped that this will provide a boost for the green capital market. On 12 October 2021, the European Commission issued the first NextGenerationEU green bond, thus raising EUR 12 billion to be used exclusively for green and sustainable investments across the EU 33 .

But once again, the green transition will never be able to do without capital from the private sector. Businesses are currently fighting with all their might to keep their heads above water. Although the number of insolvencies is presently at an historical low in many European countries 34 , this is inevitably due to the fact that a large part of the business community is being artificially kept alive by the various rounds of state aid (‘zombie’ companies). Many people expect a wave of insolvencies across the European Union 35 . This being said, Klaas Knot, president of the Dutch central bank, recently intimated that he was not all that gloomy about the prospects of the Dutch economy 36 . Whatever the case, it is very much to be hoped that in the coming period the struggling business community will recognise just how essential the green transition is and make their contribution. 

    Towards a more sustainable world?

As is apparent from the Green Deal and the Sustainable Finance Action Plan (SFAP), the European Union sets the bar high when it comes to sustainability. Indeed, the Commission even considers that progress is not fast enough; for instance, the European Commission has already published a follow-up of the SFAP on 6 July 2021 37

But the EU is not an island. Broadly speaking, two contrasting scenarios are conceivable. In a pessimistic scenario, the more flexible or even non-existent sustainability agendas of other geopolitical powers gives them a competitive advantage that is detrimental to the EU. In an optimistic scenario, the EU will set the sustainability standard worldwide 38 . Major institutional investors such as Blackrock and State Street in any event state that they are strong supporters of the sustainability agenda 39 . And some hope is also provided by the fact that the United States rejoined the Paris climate agreement on 20 January 2021 following a decision by its 46th president Joe Biden, although at the time of writing he is having a hard time in getting his ambitious climate plans adopted 40 .


  1. See, COM(2018) 97 final, 8.3.2018, p. 1.
  2.  See, most recently on the CMU Action Plan: COM(2020) 590 final.
  3.  See, the Green Deal presented by the Commission on 10 December 2019 (COM(2019) 640 final) and the proposal forming part of it and dated 4 March 2020 for a European Climate Law (COM(2020) 80 final). For an amended and more ambitious proposal for a European Climate Law, see: COM(2020) 563 final (17 September 2020). See also COM(2020) 562 final.
  4.  See, COM(2018) 97 final, p. 3.
  5.  See, COM(2018) 97 final, pp. 4-11. See also, COM(2021) 390 final and COM(2021) 188 final. For more about the SFAP or parts of it, see Danny Busch, Guido Ferrarini and Arthur van den Hurk, ‘The European Commission’s Sustainable Finance Action Plan and Other International Initiatives’ in Danny Busch, Guido Ferrarini and Seraina Grünewald (eds), Sustainable Finance in Europe: Corporate Governance, Financial Stability and Financial Markets (Palgrave Macmillan 2021).
  6.  Regulation (EU) 2020/852 (below: the Taxonomy Regulation).
  7.  Article 9, Taxonomy Regulation.
  8.  Article 3, Taxonomy Regulation.
  9.  The draft regulation and two accompanying draft annexes can be downloaded at:
  10.  Article 27(2) of the Taxonomy Regulation. See also, Christos V Gortsos, ‘The Taxonomy Regulation: More Important Than Just as an Element of the Capital Markets Union’ in Danny Busch, Guido Ferrarini and Seraina Grünewald (eds), Sustainable Finance in Europe: Corporate Governance, Financial Stability and Financial Markets (Palgrave Macmillan 2021).
  11.  (24 March 2021).
  12.  See, Matthijs Schiffers, Kernenergie is de hete aardappel die de Commissie liever nog even doorschuift (Nuclear energy is a hot potato the Commission doesn’t wish to burn its fingers on just yet), FD 3 April 2021, p. 33.
  13.  Regulation (EU) 2019/2088, as later amended by the Taxonomy Regulation (below: SFDR).
  14. Article 2(17) SFDR; Article 3 Taxonomy Regulation.
  15.  See, recital (9) SFDR.
  16.  Art. 2(22) SFDR.
  17.  Art. 2(17) SFDR.
  18.  See, Art. 9 (dark green products) and 8 (light green products) SFDR, respectively.
  19.  See, Art. 6 SFDR.
  20.  The three ESAs are: ESMA, EBA and EIOPA.
  21.  JC 2021 03.
  22.  See the Joint ESA Supervisory Statement dated 25 February 2021 (JC 2021 06), which can be downloaded at
  23.  JC 2021 22. See p. 57 ff for a consolidated version of the Level 2 rules.
  24.  It is evident from a letter dated 7 January 2021 from the ESAs to the European Commission (JC 2021 02) that financial intermediaries have a host of questions about the meaning of all kinds of terms used in the SFDR. See for the Commission’s response: For more about the SFDR, see, for example, Danny Busch, ‘Sustainability Disclosure in the EU Financial Sector’ in Danny Busch, Guido Ferrarini and Seraina Grünewald (eds), Sustainable Finance in Europe: Corporate Governance, Financial Stability and Financial Markets (Palgrave Macmillan 2021). See also the ‘sustainability letters’ from the Dutch conduct-of-business supervisor AFM to the sector of 6 July and 16 December 2020:;
  25.  See, ‘AFM/AMF Position Paper: Call for a European Regulation for the provision of ESG data, ratings, and related services’( On this subject, see Daniel Cash, Calls for ESG Rating Agency Regulation Grows Louder in Europe, But Could It Actually Save the Industry? (; ESMA’s letter to DG FISMA dated 28 January 2021 (ESMA30-379-423).
  26.   See, COM(2021) 390 final, at p. 3. See for the proposal for the CSRD itelf: COM(2021) 189 final.
  27.  See, COM(2021) 189 final, Art. 19a and 29a CSRD, as well as recitals (15) et seq.
  28.  Paradoxically, e.g. the Amsterdam AEX Index is currently reaching an all-time high. Nowadays, this index is dominated by tech companies such as ASML and Adyen, which are precisely the businesses doing well during the coronavirus crisis. Naturally, the ultra-low interest rates are also playing a role. 
  29.  That link was identified, for example, by the European Commission in the Consultation on the renewed sustainable finance strategy dated 8 April 2020 (p. 3) (
  30.  See, COM(2021) 148 final, pp. 9-11;
  31.  See, The Corona Recovery Fund (the European Union Recovery Instrument) was established by regulation (see Regulation (EU) 2020/2094 and Regulation (EU) 2021/241). The amount of EUR 750 billion is in 2018 prices. In current prices this amounts to EUR 806.9 billion. See:
  32.  See, (10 December 2020).
  33.  See,
  34.  See,
  35.  See, (Netherlands); Ryan Banerjee et al., Liquidity to solvency: transition cancelled or postponed? BIS Bulletin no. 40 (25 March 2021) (international overview); Federico J. Diez et al., Insolvency Prospects Among Small-and-Medium-Sized Enterprises in Advanced Economies:Assessment and Policy Options, IMF (2 April 2021) ( (international overview).
  36.  See, Marcel de Boer and Joost van Kuppeveld, ‘Klaas Knot: Ik ga niet mee in het idee van een tsunami van faillissementen (I don’t buy into the idea of a tsunami of insolvencies), FD 23 March 2021, p. 13.
  37.  See, COM(2021) 390 final. See also COM(2021) 188 final.
  38. See, Anu Bradford, The Brussels Effect: How the European Union Rules the World (Oxford University Press 2020).
  39. See and
  40. See: See also the public statement of John Coates (Acting Director, Division of Corporation Finance, U.S. Securities and Exchange Commission, SEC) dated 11 March 2021 ESG Disclosure – Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets ( See Richard Kessler, ‘COP26 – Joe Biden’s climate credibility hangs by a thread as the clock ticks to Glasgow’ ( 
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Professor Dr. Danny Busch, Will Europe Set the Sustainability Standard Worldwide?, Dec 2021,

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