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5.2. Current regulatory changes supporting effective capital allocation Particularly in the EU, regulatory changes in the financial sector are currently being implemented or planned that support effective capital allocation. The first sub-chapter will provide an overview of these changes. Despite the fact that the regulatory pace in Switzerland is slower, there are still discussions related to regulations on sustainable finance, which will be introduced in the second sub-chapter.96 A critical discussion of these regulatory activities in the EU and Switzerland follows in chapter 7.2.
5.2.1. EU regulations In March 2018, the European Commission published an Action Plan97 on financing sustainable growth. The three aims of the Action Plan are to (a) reorient capital flows towards sustainable investment, (b) manage financial risks stemming from environmental and social issues and (c) foster transparency and long-termism in financial and economic activity. 98 The Action Plan contains ten actions addressing most of the prerequisites as discussed above. Based on this Action Plan, several far-reaching regulatory changes have been developed that have the potential to strengthen capital allocation considerably. They are directly relevant for EU members such as Luxembourg but are likely to have effects beyond the EU market. EU Taxonomy and related regulations Central to the Action Plan is the EU Taxonomy, a classification system that intends to help investors make informed investment decisions. It lists environmentally friendly economic activities and respective technical minimum requirements. Providers of financial products are required to disclose information on the degree of alignment with the Taxonomy by the end of 2021.99 The focus of the EU Taxonomy is on environmental aspects. Actually, the EU Taxonomy currently focuses on climate change mitigation and adaptation, but an extension is foreseen to include four other environmental topics: water and marine resources, circular economy,
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The following description focuses on political action, mainly addressing the pre-requisite as described in chapter 5.1. In addition to these, regulators could also promote capital allocation by applying prohibitions of certain unsustainable financial practices or providing support for sustainable ones, e.g. through tax reliefs for sustainable financial products. 97 European Commission 2018 98 European Commission 2018. 99 By 31 December 2021, the application of the Taxonomy with regard to climate mitigation and adaptation is required. By 31 December 2022, the application of the Taxonomy with regard to the other four environmental objectives (sustainable use and protection of water and marine resources, transition to a circular economy, pollution prevention and control, protection and restoration of biodiversity and ecosystems) is required.
INFRAS | 3 May 2021 | Summary
