In the changing global context, prompted also by the pandemic, the European Union plays a key role as an ethical global and multilateral partner in international relations, innovation and global finance.
The new EU legislation on sustainable finance, although within a plurality of experiences, is contributing to a change in the classic financial culture. In the comparison with the traditional banking system - based on criteria and indicators that are as objective as possible - from the classic ones relating to economic solidity and efficiency, to those that are more focused on the social and environmental impact on communities and territories. In this context, a possible in-depth study of the relationship between ethical finance and human rights should also be considered, as a basis for any serious reflection on corporate social responsibility.
The first part of the European Regulation outlining and regulating sustainable finance has entered into force. The Regulation is part of the Sustainable Finance Action Plan, an EU pathway to redirect private capital flows and manage the risks of climate change, promoting long-term objectives.
The Sustainable Finance Action Plan provides, briefly: a classification of sustainable activities (taxonomy); the introduction of standards for green bonds; guidelines on the publication of information on climate impacts; guidelines on environmental reporting and transparency. This path outlined by the European Union is extremely interesting and positive from several points of view, first of all regarding the need to ensure shared parameters to establish which investments can be defined as sustainable.
The European Union's ambition is to combat climate change and emerge from the severe economic, health and social crisis of 2020 - triggered by COVID-19 - with public funds and private capital, oriented, however, towards financing projects that promote «sustainable economic growth». This refers in particular to financial products such as investment funds or pension schemes that take into account not only financial variables, but also factors such as environmental protection, social issues and good corporate governance. The so-called ESG criteria (Environmental, Social and Governance). In its action plan, the European Union therefore takes particular account of financial activities such as investments in corporate securities and not banking in the narrow sense.
The European Union promotes a model of sustainable finance that focuses almost exclusively on specific financial products and not on all the activities offered by a banking group. At the moment, as mentioned above, the scope also concerns the management and investment activities of financial products, not the provision of credit or other banking activities. Ethical finance, on the other hand, is based on the coherence of all its activities. Talking about ethics should be interpreted holistically.
The Action Plan takes its first formal steps on 10 March 2021 through the entry into force of Regulation (EU) 2019/2088 on sustainability‐related disclosures in the financial services sector, Sustainable Finance Disclosure Regulation or SFDR. The European Union is also continuing to work on governance and social aspects: there is talk of the idea of a social taxonomy that would complement the current one, which is mainly concerned with environmental aspects. Regulation 2019/2088 is therefore only the first step in the Action Plan, which will be implemented in the coming months and years. It should be noted that as of 27 April 2021 - less than two months after the entry into force of the European SFDR Regulation (10 March 2021) - almost 24% of open-ended funds and ETFs domiciled in Europe would have declared themselves sustainable, for total assets under management (estimated) of around EUR 2,500 billion.
In conclusion, ethical and sustainable finance pursues economic gains in order to maximise benefits for society and the planet, as opposed to mainstream economics, which aims to maximise products. However, the Action Plan does not question the latter model, does not talk about the worst impacts of the financial system and does not provide any rules on transparent and participatory governance models. Moreover, it focuses on the sustainability of individual products and not on all related activities as a whole. The weighting of Environmental, Social and Governance (ESG) parameters in ethical finance should take all criteria into account, whereas the Action Plan only focuses on environmental sustainability.
When the interests of citizens and the common good take precedence over those of profit, we will be able to speak of an ethical Europe also from a financial point of view, in view of the many challenges ahead.
Translated by Irene Leonardi