Addressing The Challenges Of The New Sustainable Finance Regulations

With time, sustainability has become the most important, or you can say the most pressing topic for all. It greatly results from the fact that human lives at the expense of the earth and are destroying the habitat for their future. Sustainability means the quality of not being harmful and not affecting the natural resources, supporting the long-term ecological, social, and governmental balance.

This is major reasons the European Commission initiated the Sustainable Finance initiative or sustainable finance regulations. The primary idea behind this is that the financial service sector must make the required contribution to the world’s sustainability. By the end of the year 2030, the European Union is trying to lower the European greenhouse emission level by around 55 percent. This will help to increase renewable energy share within the country’s overall energy consumption by 32 percent.

As per the requirement, the total investment gap is projected to be around €260 billion by the end of 2030. However, the public sector alone can’t meet the investment amount, and the country’s financial sector needs to play a major role in this. Sustainable Finance, adopted by the European Commission, will mobilize the private sector’s finance to attain a better sustainability level.

This required a huge investment

As per the report, the Green Deal, which was initiated in December 2019, has boosted up the EU’s climate action and environmental policy and is projected to make Europe the first Carbon- Neutral Continent by the end of 2050.  This deal will utilize around €1 trillion in the coming years. On the other hand, the current COVID-19 pandemic has made the authorities work to improve societies and economies’ resilience.

As the investment requirement will be huge, the European Commission initiated the Renewed Sustainable Finance Strategy.

The overview of the EU action plan

Speaking about the Action Plan, it covers three major areas, which include capital flow reorientation for sustainable investment. Besides, it also involves transforming sustainability into risk management. Furthermore, it also deals with promoting long-term as well as transparency.

Furthermore, the European Commission is also working for the EU GBS- EU Green Bond Standard for bond issuers. This is a voluntary consulting firm that works till October 2020. Besides, it may offer a legislative proposal in the new future.

Three major legislative proposals

1. Starting from 10th March 2020, the SFDR- EU Sustainable Financial Disclosure Regulation will facilitate NFRD- Non-Financial Reporting Directive.
2. The Taxonomy Regulation was issued on 12^th July of 2020, and it offers all the investors and companies services to understand sustainability.
3. The last one is about the Low-Carbon Benchmark Regulation, which offers an easy-to-use tool for better comparative analysis.

Implementation of the rules

Some of the major steps that the authority should take are:

1. Initial analysis of the regulations.
2. State of play
3. Analyze the impact
4. Understanding the objectives
5. Deploying the strategies

The implementation of sustainable finance regulation is important to make sure everyone is following a better compliant strategy.