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Financing sustainable growth in the EU: A new field of regulation

Vassileios Mavrommatis of EY Law Greece takes a closer look at the EU’s initiatives towards a more resource-efficient economy through the ESG Disclosure Regulation, the ESG Taxonomy Regulation, and the Low Carbon Benchmarks Regulation.

Over recent years, environmental, social and governance (ESG) considerations have become a key focus point for governments, financial institutions and companies around the globe, aiming to address the increasingly alarming issue of climate change. The involvement of the financial sector in this effort – from credit institutions to payment service providers – will be pivotal, as they will need to take into account financial risks and opportunities presented by environmental factors.

Developments in Greece

In Greece, there have been numerous government-led and market-based initiatives aiming to promote the financing of sustainable growth. In particular, the Greek government adopted the National Energy and Climate Plan in December 2019. In this context, the Bank of Greece has undertaken several actions to raise awareness around the topic, resulting in it being distinguished by the Official Monetary and Financial Institutions Forum, together with the European Central Bank (ECB) and the Bank of England, as the central banks with the most influential activity around climate change.

Moreover, the Bank of Greece has become a member of the Network of Central Banks and Supervisors for Greening the Financial System. On the same line of action, all systemic banks of Greece have participated in various financial coalitions promoting sustainable finance, while already offering products covering ESG considerations.

EU Action Plan for sustainable growth

In order to streamline national initiatives and efforts, the EU has been at the forefront of regulatory interventions to create a financial system that supports sustainable growth and a more resource-efficient economy. To this end, the European Commission published its Action Plan on Financing Sustainable Growth (the EU Action Plan) in March 2018, which intends to realise the objectives set by the UN 2030 Agenda for Sustainable Development (adopted in 2015) and the Paris Agreement (in force since November 4 2016).

As part of the EU Action Plan, the European Commission published a package of regulatory proposals in May 2018, from which its three main regulations originated: the ESG Disclosure Regulation, the ESG Taxonomy Regulation, and the Low Carbon Benchmarks Regulation, along with plenty of amendments to various existing sectoral directives, to incorporate ESG considerations.

Low Carbon Benchmarks Regulation

The Low Carbon Benchmarks Regulation (2019/2089/EU – in force since December 2019) amended the EU Benchmarks Regulation (2016/1011/EU) which was already in place. This regulation is the most targeted one and has a narrower scope of application compared with the other two regulations, which create a wider field of obligations for entities under their scope.

ESG Disclosure Regulation

Regulation (EU) 2019/2088 (the ESG Disclosure Regulation), partly applicable from March 10 2021 and partly from January 1 2022, mandates financial market participants and financial advisers, as defined therein, to provide transparency regarding the ESG considerations they incorporate into the services they provide to their clients. This will enable end investors to make informed decisions between financial service providers, in relation to sustainability. As an example, this will facilitate companies to consider – when deciding on their banking partners – sustainability objectives that are aligned with their own corporate responsibility and governance agendas, such as water waste policies and employee diversity policies.

Furthermore, the ESG Disclosure Regulation obliges the above entities to prove, by making certain disclosures, how products and services they promote as having ESG objectives and characteristics meet the respective advertised standards. This obligation aims to prevent the so-called ‘greenwashing’; the marketing practice of falsely promoting a financial product as environmentally sustainable, when in reality it does not meet basic environmental standards.

ESG Taxonomy Regulation

Regulation (EU) 2020/852 (the ESG Taxonomy Regulation), partly applicable from January 1 2022 and partly from January 1 2023, provides a framework for the creation of an EU-wide, unified classification system for environmentally sustainable economic activities. The goal of this taxonomy is to create a common language and a methodology for investors to determine economic activities applying environmental considerations. This will allow investors to identify, classify and compare the sustainability credentials of companies and financial instruments, thus funneling capital flows toward sustainable finance. A unified taxonomy will reduce inconsistent definitions from market-based initiatives and national practices, also combating ‘greenwashing’.

For an economic activity to qualify as ‘environmentally sustainable’ under the ESG Taxonomy Regulation, the below criteria must be cumulatively fulfilled:

(i) It contributes substantially to one or more of the six environmental objectives provided for in the regulation, according to criteria set by delegated regulations and secondary acts, namely:


  • Climate change mitigation;
  • Climate change adaption;
  • Sustainable use and protection of water and marine resources;
  • Transition to a circular economy, waste prevention and recycling;
  • Pollution prevention and control; and
  • Protection and restoration of biodiversity and ecosystems
(ii) It does not substantially harm any of the other six environmental objectives; and

(iii) Is carried out safeguarding certain minimum social and governance standards.

Looking ahead

Finally, amendments to various pieces of sectoral legislation, such as MiFID II (Directive 2014/65/EU), AIFM Directive (Directive 2011/61/EU), UCITS Directive (Directive 2009/65/EC), Solvency II (Directive 2009/138/EC) and IDD (Directive 2016/97/EU) have been in drafted in 2020 and are still in consultation and political trilogue compliance with the amendments that are anticipated to be introduced will entail a great deal of effort, since various regulatory areas will need to be reconsidered by financial firms.

For example, firms’ risk management policies will need to cover sustainability risks, and conflict of interest policies will need to cover conflicts related to attaining sustainability-related objectives. Therefore, it is evident that, after the application of all three main ESG Regulations, and of the sectoral legislation amendments, a whole new field of regulatory compliance will open up for financial firms.

Vassileios Mavrommatis
T: +30 210 288 6508

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