歐盟可持續(xù)金融議程-可持續(xù)性衡量標(biāo)準(zhǔn)發(fā)展的雙重重要性治理

123Vol.:(0123456789)

EuropeanBusinessOrganizationLawReview(2022)23:87–123

/10.1007/s40804-021-00229-9

ARTICLE

TheEUSustainableFinanceAgenda:Developing

GovernanceforDoubleMaterialityinSustainabilityMetricsIrisHYChiu?1

Accepted:13December2021/Publishedonline:31January2022

?TheAuthor(s)2022

Abstract

ThisarticlearguesthattheregulatorysteersintherecentEUSustainableDisclo-sureandTaxonomyRegulationsrelyheavilyontheoutworkingofmarket-basedgovernancetomeetpublicinterestgoalsinsustainablefnance.Hence,additionalworkinsustainabilitymetricsdevelopmentthatinformstheinvestmentsectorofsustainableperformanceincompanieswouldbeofkeyimportance.ThisarticlearguesthatthereremaingapsinEUleadershipforgoverningmetricsdevelop-ment,andsuggeststhatEU-levelgovernancecanbedesignedappropriately,espe-ciallyinamulti-stakeholdermanner,formetricsdevelopmentandinrelationtokeyinformationintermediariesinthisspace.

KeywordsSustainablefnance·Sustainabletaxonomy·Doublemateriality·Sustainablebenchmark·Sustainableindex

1Introduction

Oneofthemeansforachievingsustainablepolicygoals

1

liesinmobilisingthefnanciallever,i.e.,torequirefnancierstomakeallocativedecisionsbasedonsustainableconsiderations,inordertosteereconomicactivitytowardssustain-ableoutcomes.Thefnancialleverisameaningfuloneasprivategovernance,oftenincentive-based,cansteerbehaviourinamannerthatisalsoalignedwith

1High-LevelExpertGrouponSustainableFinance(HLEG)(

2018

).

*IrisH-YChiu

hse-yu.chiu@ucl.ac.uk

1

ProfessorofCorporateLawandFinancialRegulation,UniversityCollegeLondon,London,UK

88I.H.-Y.Chiu

123

theachievementofcollectivegoals.

2

Thefnanciersofcorporatecapitalismplay

apartinsteeringtheirdebtor

3

orinvesteecompanies

4

towardsbehaviourthat

takesintoaccountsustainabilityconsiderations.

TheEU’ssustainablefnancereformsincludetheSustainabilityDisclosureRegulation2019

5

andTaxonomyRegulation2020,

6

aswellasfollow-oninitiativesfortheregulationofinvestmentfrms,fundsandbenchmarks.

7

Thesereformscomprise(a)mandatorydutiesforregulatedinvestmentfrmsandfundmanagerstointegratesustainabilityrisks;

8

(b)mandatorysaleandongoingdisclosureobli-gationsformarketingsustainableproducts;

9

and(c)defningsustainabilityobjec-tivestopreventgreenwashing.

10

However,thefnancialleverrelieskeenlyonmar-ketforcestoafectmarketparticipants’actions.Keytothesuccessofthefnancialleverisarguablythemeasurementofsustainabilityimpactandachievementwhichwouldenableinvestmentintermediariesandtheirinvestorstomakerelevantdeci-sionsonthatbasis.

EUregulationshaveachievedmuchintermsofspecifyingandstandardisingthesustainableobjectivesandoutcomesforthefnanciallever.

11

Inparticular,pol-icy-makersembracedoublemateriality

12

inmeasuringinvestmentoutcomes.This

2Black(

2003

).

3Discussedinrelationtobanks’rolesinmonitoringsustainabilityimpactindebtfnancing,suchasinprojectfnance,bymeansofimplementingthevoluntaryEquatorPrinciples,see

https://equator-princ

/about/

(accessed15Nov2021);andHerbertsonandHunter(

2007

);critically,Sarro(

2012

).

4Sociallyresponsibleinvestorshavebeenadrivingforceforinfuencingcorporationsinrelationtosociallyresponsiblebehaviour,eitherthroughportfolioselectionprocessesoractivism,seegenerallyGibsonetal.(

2018

);Serafeim(

2018

);Kakeu(

2017

);Osthof(2015).Investortradebodiescanalsohelppromotebestpracticesonthepartofinvestorsinresponsibleinvestment,seeYamahaki(

2019

).However,seecriticaldiscussionsrelatingtopassiveinvestmentandgenerallyweakinvestmentinfuenceoncorpo-ratebehaviour,Glac(

2014

),Grewaletal.(

2016

);Amba(

2018

).

5Regulation(EU)2019/2088oftheEuropeanParliamentandoftheCouncilof27November2019onsus-tainability‐relateddisclosuresinthefnancialservicessector(SustainabilityDisclosureRegulation2019).

6Regulation(EU)2020/852oftheEuropeanParliamentandoftheCouncilof18June2020ontheestablishmentofaframeworktofacilitatesustainableinvestment,andamendingRegulation(EU)2019/2088(TaxonomyRegulation2020).Otherrelevantlegislationsuchasamendmentstocorporatereporting,regulationofinvestmentfrmsandfunds,aswellasbenchmarkregulationwillbediscussedinthearticle.

7CommunicationfromtheCommissiontotheEuropeanParliament,theCouncil,theEuropeanEco-nomicandSocialCommitteeandtheCommitteeoftheRegions:EUTaxonomy,CorporateSustaina-bilityReporting,SustainabilityPreferencesandFiduciaryDuties:DirectingfnancetowardstheEuro-peanGreenDeal(21April2021),

https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52021

DC0188

(accessed15Nov2021).

8Supran.5andinfran.21.

9Regulationsinnn.5and6supra.

10Art.2,SustainabilityDisclosureRegulation2019,aswellasenvironmentallysustainableobjectivesdefnedintheTaxonomyRegulation2020andtheforthcomingsocialtaxonomyenvisagedbytheCom-mission,

https://ec.europa.eu/info/sites/default/fles/business_economy_euro/banking_and_fnance/

documents/fnance-events-210226-presentation-social-taxonomy_en.pdf

(accessed15Nov2021).

11Suprann.5and6.SeealsoZetzscheandS?rensen(

2021

)inthisvolume.

12SeeESMA’semphasisondoublematerialityin‘ESMAsupportsIFRSFoundation’sefortsoninter-nationalstandardisationinsustainabilityreporting’,16Dec2020),

https://www.esma.europa.eu/press-

news/esma-news/esma-supports-ifrs-foundation%E2%80%99s-eforts-international-standardisation-in

TheEUSustainableFinanceAgenda:DevelopingGovernance…89

123

meansthatsustainableoutcomesmatternotonlyfortheirrelevancetofnancial

performanceofinvestments.Theuniverseofsustainabilityoutcomesislargeand

varied,withmanyaspectssusceptibletoqualitativeevaluation.Thereisunfnished

workinrelationtothedevelopmentofsustainabilitymetrics.Metricsrefernotonly

totheoutcomesorobjectivesbutalsototheselectionandidentifcationofsuitable

indicatorswhichprovidearubricformeasuringattainment.

13

Further,thedevelop-

mentofsustainabilitymetricsmustincludechoicesaboutthetolerancelevelofthe

extentofattainment.Metricsdevelopmentisimportanttofacilitatetheevaluations

thatneedtobecarriedoutbyinvestmentintermediariesinordertofulflthenewly

introducedregulatoryobligations.Further,metricsdevelopmentgoesbeyondsup-

portingthefnanciallever,asitprovidesforbroadervisibilityandaccountabilityfor

economicactivitymoregenerally,tostakeholdersandsociety.Hence,inthisarticle,

weidentifymetricsgovernanceascrucialtotheEU’ssustainablefnanceagendaand

discusshowitmaybefurtherdeveloped.Addressingsuchgovernanceneedswould

likelybethenextstepintheevolutionofthesustainablefnancepolicyagenda.

14

In

doingso,wedonotforgetthattherehavealreadybeenbottom-updevelopmentsin

theinvestmentindustryfocusedon‘ESG’(environmental,socialandgovernance)

indicatorsovertheyears,raisingthequestiontowhatextenttheEU’sattemptsat

redefningsustainabilitycoherewithorcontestagainstthosedevelopments.

However,thisarticleacknowledgestheobvious,whichisthatthefnanciallevercannotbethe‘wholeanswer’toachievingeconomicbehaviouralchangetowardssustainability.Financialmobilisationtowardssustainabilityisultimatelyincentive-based,andthecorporatesectorneedstotranslateintoactionsandconducteco-nomicactivitythatissustainable.Investmentinfuenceuponthecorporatesectorisonlyonepieceofthemosaicfortransformingcorporatebehaviour,

15

andinvestors’behaviourisitselfasubjectofcriticismanddebate.

16

Nevertheless,thedevelopmentofregulatorysteersforinvestorbehaviourcanplayavaluablepartinthepolicymosaictowardsmobilisingsustainablecorporatebehaviour.

Section2providesanoverviewofthesustainablefnancepolicyintheEU.Sec-tion3discussestheroleofregulatorygovernanceinredefningsustainabilityandwhatithasachieved.Itdiscussestheneedsformetricsdevelopmentandwhatgov-ernanceneedsremainunmet.Section4arguesthattheEUiswellplacedtoaddressthegovernanceneedsforsustainabilitymetricsdevelopmentandthenextstepspol-icy-makersshouldconsider.Section5concludes.

Footnote12(continued)

(accessed15Nov2021).

13TanzilandBelof(

2006

).

14Maijoor(

2020

).

15SeeMacNeilandEsser(

2021

)inthisvolume.

16GilsonandGordon(

2013

);BebchukandHirst(

2019

);FichtnerandHeemskerk(

2020

).

90I.H.-Y.Chiu

123

2TheEUSustainableFinanceAgendaasPolicyLever

Astheinvestmentsectorwieldssignifcantinfuence,withglobalassetsunderman-

agementgrowingyearonyear,estimatedtobeatUSD$145trillionby2025,

17

pol-

icy-makershavestartedlookingtothegatekeepingcapacitiesoftheinvestmentsec-

tor.Thisissothattheseintermediariesincapitalmarketscanplayausefulpartin

thegovernancelandscapeforshapingeconomicbehaviourtowardsalignmentwith

sustainablegoals.

18

TheEU’ssustainablefnancestrategyhasbroughtaboutreformsincapitalmar-ketsregulation.TheSustainabilityDisclosureRegulation2019nowcompelsallfnancialmarketparticipantsengaginginportfoliomanagementorfundmanage-ment(whetherasmainstreampensionorcollectiveinvestmentschemes,orasalter-nativeinvestmentsfunds)

19

tomakemandatorydisclosureofhowtheyintegratesus-tainabilityrisksintheirinvestmentdecision-making.

20

Thisalsoincludesfnancialservicesprovidersthatsupplyinvestment-basedproductsaspartofaninsuranceproduct.Thismandatorydisclosureobligationistobeupgradedshortlytoadefni-tivedutytointegratesustainabilityrisksintoinvestmentstrategies,riskmanagementandgovernance.

21

Further,arangeofnewmandatorydisclosureobligationsapplytolargeinvestmentfrmsandtothemarketingandongoingreviewofsustainablylabelledinvestmentproducts.

22

Inaddition,andcrucially,theredefnitionof‘sus-tainability’hasbeenlegalised,proceedingfromenvironmentalsustainability

23

tosocialdevelopmentsustainability,inordertoprevent‘greenwashing’ininvestmentproducts,aproblemidentifedbycriticsofself-regulatingandself-labelledESGproducts.

24

TheEU’ssustainablefnanceagendahasbeenbuiltuponearlierpolicynudg-inginstitutionalinvestorstowardsbecomingengagedshareholdersintheirinves-teecompanies.TheEUShareholders’RightsDirective2017introducedaregimeofcomply-or-explainforinstitutionalinvestors

25

inordertonudge

26

themtowards

17PwC(

2017

).

18

/?menu=1300

(accessed15Nov2021).

19SustainabilityDisclosureRegulation2019,Art.2.

20Ibid.,Art.3.

21CommissionDelegatedRegulationtoamendtheAlternativeInvestmentFundManagersDirec-tive,

https://ec.europa.eu/fnance/docs/level-2-measures/aifmd-delegated-act-2021-2615_en.pdf

(dated

21April2021)(accessed15Nov2021);CommissionDelegatedDirectivetoamendtheUCITsDirec-tive,

https://ec.europa.eu/fnance/docs/level-2-measures/ucits-directive-delegated-act-2021-2617_en.pdf

(dated21April2021)(accessed15Nov2021);CommissionDelegatedDirectivetoamendtheMarketsinFinancialInstrumentsDirective,

https://ec.europa.eu/fnance/docs/level-2-measures/mifd-2-delegated-

act-2021-2612_en.pdf

(dated21April2021)(accessed15Nov2021).

22SustainabilityDisclosureRegulation2019,Arts.4,7,8-11.

23Arts.9-17,TaxonomyRegulation2020.

24‘Unregulated“greenwashing”?ESGinvestingisunderthemicroscopeasthemoneyrollsin’,CNBCNews,14Oct2020,

/2020/10/14/esg-investing-meaning-is-under-the-microscope-

as-the-money-rolls-in.html

(accessed15Nov2021).

25Art.3g.

26Madsen(

2021

).

TheEUSustainableFinanceAgenda:DevelopingGovernance…91

123

moreengagedbehaviour,intheoverallpromotionofthelong-terminterestsofben-

efciaries.

27

Suchshareholderengagementcantakeplaceinrelationtocompanies’

corporategovernanceaswellastheirfootprintinESGmatters.

28

Earlier,tosupport

investors’engagementrole,theEUintroducedregulationforlistedcompaniesto

makerelevant‘non-fnancialdisclosures’inrelationtoenvironmentalimpacts,and

impactsonemployees,humanrights,andanti-corruptionmatters.

29

However,itcanbearguedthattheshareholderengagementandcorporatenon-fnancialdisclosurereformssuferfromalackofconnectiontothepublicinterestgoalsofsustainability.Shareholderengagementinresponsetocorporatedisclo-sureisverymuchinthenatureofaddressingthe‘a(chǎn)gency’problem,ultimatelytosteercompaniestowardsbeingaccountabletoshareholders.Theseshareholdersarealsoacknowledgedtohavetheirownprivateinterestsandmandatesinrelationtoinvestmentmanagement.Thenatureofprivatecorporategovernanceandtheprivatenatureofinvestmentmanagementdutiesmaynotsufcientlyconnectwiththepub-licinterestgoalsofsustainability.

30

Thisisbecauseprivateincentivesareboundupintheneedtogeneratefnancialreturn,onthepartofcompaniesfortheirsharehold-ersandonthepartofinstitutionalshareholdersfortheirassetownersandbenef-ciaries.

31

Althoughprivateincentivescanbecompatiblewithpublicinterestgoals,asempiricalresearchhasshownthatinvestingin‘good’islargelycompatiblewithinvesting‘well’intermsoffnancialperformance,

32

trade-ofsbetweengeneratingfnancialreturnandcommittingtosustainablebehaviourhavealsobeenobserved.

33

Inthismanner,theEU’ssustainablefnancereformstakeastepfurtherbyintro-ducingregulatorysteersintheobjectivesofinvestmentmanagementsothatpublicinterestgoalsinsustainabilityhavetobeinternalised.However,theSustainableDis-closureandTaxonomyRegulationsintroducedin2019and2020cannotover-pre-scribeorover-intrudeintothefreedomtodesigninvestmentmandatesandcontinuetoco-optmarketforces,butinamannerthatnudgestowardsthepromotionof:(a)conventionalinvestmentthatinternalisessustainabilityconsiderations,and(b)spe-ciallydesignedsustainableinvestmentsthatdeliversustainableoutcomesalongsidefnancialones.Thelattermarketisgrowinginrelationtoinvestors’pro-socialpref-erences,onthepartofmanyinstitutionsandindividuals,

34

andwillbeattractiveforinvestmentfundintermediaries.

27Arts.3hand3i.

28Arts.3gand3hinrelationtonon-fnancialperformance.SeealsoPrinciples9-11,UKStewardshipCode,

.uk/getattachment/5aae591d-d9d3-4cf4-814a-d14e156a1d87/Stewardship-

Code_Dec-19-Final-Corrected.pdf

(accessed15Nov2021).

29Art.19a,Non-fnancialDisclosureDirective2014/95/EU.

30Sj?felletal.(

2017

).

31Thefduciarydutyowedbyfundstotheirbenefciariesisprivateinnatureandcentresongeneratingthenecessaryreturnsforthepurposeofinvestment,althoughtakingintoaccountresponsibilityandsus-tainabilityissuesisnotperseirrelevanttotheprimarymandate,seeUNEPFI(

2019

).

32Friedeetal.(

2015

);Durán-Santomiletal.(

2019

);butseescepticalevidenceinLaTorreetal.(

2020

).

33Chenetal.(

2017

).

34Seeinfrann.42-44.

92I.H.-Y.Chiu

123

2.1BaselineDutyofIntegratingSustainabilityRisks

UndertheSustainabilityDisclosureRegulation,investmentfundintermediariesare

underauniversalobligationtomakemandatorydisclosureofhowthey‘integrate

sustainabilityrisks’.‘Sustainabilityrisk’isdefnedasan‘environmental,socialor

governanceeventorconditionthat,ifitoccurs,couldcauseanactualorapotential

materialnegativeimpactonthevalueoftheinvestment’.

35

Suchadefnitionadoptsa

‘singlemateriality’approachoftreatingsustainabilityriskassalientonlyifitmate-

riallyafectsinvestmentperformance.Atabaseline,thisisnotnovelandisconsist-

entwiththeinterpretationoffduciarydutyinprivateinvestmentmanagement.

36

We

willreturntothispointshortlytodiscusswhetheranopportunityhasbeenmissed

toembeddoublematerialityinthebaselineregulationofinvestmentmanagement

conduct.

Next,investmentintermediariesofacertainscale,defnedashaving500employ-eesorabove,orbeingaparentcompanyofsuchanundertaking,

37

aremandatedtoaccountforprincipaladversesustainabilityimpacts(applyingfrom30June2021).Thisapplieswhetherornotsuchfnancialservicesprovidersengagewithsustaina-blylabelledproducts.Theymustaccountforanyadverseimpactoftheirinvestmentdecision-makingprocessesonsustainabilityobjectives,forhowadverseimpactsarediscoveredandfortheduediligencepoliciesthataredeployed.

38

Smallerpro-vidersmaydeclarethattheydonotconsideradversesustainabilityimpactsintheirinvestmentdecision-makingprocessbuttheymustclearlyexplainwhyandwhetherthispracticecutsacrossalltheirproducts.

39

Thismeansthatsmallerprovidersaresubjecttothebroaddutytointegratesustainabilityrisksasdiscussedabove,butnotspecifcallytotheprescribedmandatorydisclosureofduediligencepoliciesandmeasurementofadversesustainabilityimpactimposedonlargerinvestmentinter-mediaries.Inthismanner,largerinvestmentintermediariesareunderanobligationthatismoresocially-facinginnature,i.e.,toaccountforsustainabilitycostassuch.

Althoughthisapproachseemsproportionateinordertoreducecomplianceobli-gationsforsmallerfundintermediaries,thebifurcationadoptedsuggeststhatsmallerfrmscanelecttobeprincipally‘private-facing’andpotentially‘exempt’,subjecttotheirexplanation,fromthescopeofsocially-facingaccountabilityimposedonlargerfrms.Thereisalargesectorofinvestmentfrmsthataremedium-sizedandemployunder500employees.Hence,itisquestionedastowhethertheEU’slegalisationhasachievedmuchintermsofsteeringinvestmentmanagementconducttowardsdoublemateriality.

Itmaybearguedthatthemoreremarkablereformsarethosepertainingtoman-datorydisclosureandtransparency.These,however,cruciallyrelyonmarketdisci-plinetobeefective.

35Art.2(22),SustainabilityDisclosureRegulation2019.

36SeeFreshfeldsBruckhausDeringer(

2005

);UNEPFI(

2019

);Richardson(

2011

).

37Art.4(3)and(4),SustainabilityDisclosureRegulation2019.

38Art.4(1)(a),ibid.

39Art.4(1)(b),ibid.

TheEUSustainableFinanceAgenda:DevelopingGovernance…93

123

2.2MandatoryDisclosureObligations

Itmaybearguedthatmandatorydisclosureofsustainabilityriskintegrationbyall

investmentintermediariesisalreadyastepforward,as,lefttoaself-regulatorystate,

only‘sociallyresponsible’investmentfundswouldbeunderacontractualexpecta-

tiontohaveregardtosinglemateriality.Further,by30December2022,fnancial

servicesprovidersmandatedtodiscloseprincipaladversesustainabilityimpacts

mustalsomakethattransparencyavailableatthelevelofeachfnancialproduct.

40

Thesedisclosuresarealsoregardedaspre-contractualinnature,thereforeattracting

marketandlegaldisciplinefrominvestors.

41

However,mandatorydisclosureofmaterialsustainabilityrisksandprincipaladversesustainabilityimpactswillonlychangebehaviourifassetownersandbene-fciariescareaboutsuchinformation.Thereisincreasingevidencethatassetownerssuchaspensionfunds

42

andpro-socialindividualsvaluetheavoidanceofadversesustainableimpactintheirinvestmentallocations.

43

Thisisnotnecessarilythecasewithconventionalinstitutions,

44

andinvestmentbenefciarieshavehighlyhet-erogenouspreferences.

45

Ifmarketresponseisclearandefectivelydisciplinestheinvestmentmanagementindustry,suchdisciplinecanbemuchmoreefectivethananextractionofcomplianceimposedbyregulators.However,withthebifurcationinmandatorydisclosurerequirementsapplicabletolargerandsmallerinvestmentintermediaries,investorsarguablydonotenjoyalevelplayingfeldfordisciplineefectstobetransmitted.Therewouldlikelybemixednoiseinrelationtomarketdisciplinefocusedonmaterialsustainabilityrisksrelatingtoinvestmentperfor-manceandonadversesustainabilityimpactperse.Inthismanner,itmaybeprefer-ableforpolicy-makerstoconsiderwhethertoadoptdoublematerialityasauniversalstandard.Smallerfrmscanbesubjecttolessprescriptivegovernance,althoughtheycanbemadetodisclosehowtheymanagedoublemateriality,sothattheirprioritiesandprocessescanbesubjecttopublicscrutinyandaccountability.

46

Thisisarguablyproportionateforsmallerfrmsinviewofcompliancecosts.

Mandatorydisclosureobligationsformarketingsustainablylabelledproductshavebeenenhancedconsiderably.TheSustainabilityDisclosureRegulationclari-festhatsustainablylabelledfnancegoesbeyond‘harm-basedanalysis’,andshouldrefecttheachievementofpositivesustainabilityoutcomesandnotmerelytheavoid-anceofnegativeones.Indeed‘sustainableinvestment’isdefnedintwodimensions:itshouldpositivelyachievespecifedsustainableoutcomesanddo‘nosignifcantharm’toenvironmentalandsocialobjectivesasawhole.

47

Thedefnitionof‘sus-tainablylabelled’relatesto

40Art.7,Regulation2019/2088.

41Art.6,ibid.

42Apostolakisetal.(

2018

);Delsen