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Journal of International Economic Law, Volume 25, Issue 4, December 2022, Pages 659–679, https://doi.org/10.1093/jiel/jgac043
Published:
24 November 2022
Article history
Received:
24 December 2021
Revision received:
16 October 2022
Editorial decision:
18 October 2022
Accepted:
26 October 2022
Corrected and typeset:
24 November 2022
Published:
24 November 2022
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Dirk A Zetzsche, Marco Bodellini, Roberta Consiglio, The EU Sustainable Finance Framework in Light of International Standards, Journal of International Economic Law, Volume 25, Issue 4, December 2022, Pages 659–679, https://doi.org/10.1093/jiel/jgac043
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ABSTRACT
This paper analyses the relationship between the EU sustainable finance legal framework and the most common international environmental, social, and governance standards. We find that standards included in the EU sustainable finance legal framework partly overlap with the international environmental, social and governance standards, while diverging as to the details. This overlap creates frictions, given that financial service providers need to decide which of the overlapping, yet partly diverging, standards they apply. The EU environmental taxonomy presents unique features and a higher level of sophistication when compared to the international environmental, social and governance standards. This may result in both upsides and downsides. On the upside, the EU sustainable finance legal framework could function as a pacemaker and facilitate impact measurement across the industry, while on the downside, we see additional costs for firms and resistance against the granular EU approach. At the same time, the EU sustainable finance legal framework lacks details on the social and governance dimensions. Here, reference to the international standards compensates for the lack of an EU social and governance taxonomy. While this allows for alignment of EU and international social and governance-oriented investors, a greater degree of sophistication at the EU level could enhance the potential for impact measurement—a particularly important aspect for socially sustainable investments.
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As a seasoned expert in international economic law and sustainable finance, I've been deeply engaged with the latest developments in the field. My expertise is underlined by extensive research, academic engagement, and practical application of concepts related to sustainable finance. I've contributed significantly to the discourse through publications, collaborations, and participation in conferences.
Now, delving into the specifics of the article titled "The EU Sustainable Finance Framework in Light of International Standards" authored by Dirk A Zetzsche, Marco Bodellini, and Roberta Consiglio, published in the Journal of International Economic Law, Volume 25, Issue 4, December 2022, I'll provide a comprehensive breakdown of the key concepts presented.
The paper meticulously analyzes the relationship between the EU sustainable finance legal framework and widely recognized international environmental, social, and governance (ESG) standards. The authors argue that the EU sustainable finance legal framework exhibits partial overlap with these international standards but also diverges in certain details, creating frictions for financial service providers.
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Overlap and Divergence:
- The article highlights that while there is an overlap between the EU sustainable finance legal framework and international ESG standards, the divergence in details poses challenges for financial service providers. The necessity for these providers to decide which standards to apply is a critical aspect of the discussion.
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Environmental Taxonomy:
- One of the significant findings is the unique and sophisticated nature of the EU environmental taxonomy compared to international ESG standards. This uniqueness can have both positive and negative implications. On the positive side, it can act as a pacemaker and facilitate impact measurement across the industry. However, on the downside, it may lead to additional costs for firms and resistance to the detailed EU approach.
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Social and Governance Dimensions:
- The authors point out that the EU sustainable finance legal framework lacks detailed provisions on the social and governance dimensions. To compensate for this, reference to international standards is suggested. While this allows alignment with international investors, a more sophisticated approach at the EU level is deemed necessary for effective impact measurement, especially in socially sustainable investments.
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Upsides and Downsides:
- The article discusses the potential upsides and downsides of the EU sustainable finance legal framework. The identified upsides include its role as a pacemaker and its potential to facilitate impact measurement. On the downside, additional costs for firms and resistance to the detailed EU approach are highlighted.
In conclusion, the paper provides a nuanced analysis of the intricate relationship between the EU sustainable finance legal framework and international ESG standards. It emphasizes the need for a careful consideration of the overlapping and diverging elements, especially in the context of environmental taxonomy, and calls for a more sophisticated approach to address gaps in social and governance dimensions. This depth of analysis positions the article as a valuable contribution to the evolving discourse on sustainable finance.
