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esp. for retail clients. Here, the EU regulations might partly help closing the gap (see chapter 7.2). ▪ Last but not least, we suspect that another reason, also for the points listed above, might have been an insufficient sustainability-related education in the financial system. The consequences are not only the already mentioned insufficient capital allocation effect and contribution to a sustainable development. Financial actors themselves can be affected negatively: (a) Due to the lack of credibility of financial ESG products, the market potential cannot fully be exploited.132 (b) Most sustainability funds implicitly or explicitly signal improved portfolio impacts. Not fulfilling this promise poses reputational risks due to greenwashing and decreases client loyalty.133 The US Securities and Exchange Commission (SEC), for instance, just recently published several concrete cases of potentially misleading ESG-related claims.134 Meanwhile, greenwashing has become a legal risk too: In April 2021, France passed the first legal sanctions in the world that are explicitly directed against greenwashing.135 In Germany, a court proceeding against DekaBank is currently pending for allegedly misleading information about the environmental and social impacts of one of its funds.136
7.2. Current regulations point into the right direction but have major shortcomings The new EU regulations, as described in chapter 5.2.1, bring about improvements with regard to all of the above-mentioned necessary prerequisites for effective capital allocation, in part even substantially. However, they should only be regarded as first, albeit valuable steps in the right direction. For all necessary prerequisites for effective capital allocation (chapter 5.1), considerable and partly crucial shortcomings and gaps remain. Both the contributions and the remaining gaps of the new regulations are summarized in Table 11. Table 11: EU regulations for effective capital allocation and their shortcomings and gaps Relevant EU Contributions to effective cap- Remaining shortcomings and gaps regulations ital allocation (selected) EU Taxonomy
Impact measurement: The classification system of the Taxonomy lists economic activities with a positive impact on
132
The EU Taxonomy is yet incomplete. It focuses on environmental impacts, not social impacts. While it is intended that the Taxonomy is further developed, it currently incorporates merely climate change mitigation and adaptation
See also Federal Office for the Environment (FOEN) 2016. See also Federal Office for the Environment (FOEN) 2016. 134 Azizuddin 2021. For further information, see SEC Division of Examinations 2021. 135 Fines could be up to 80% of the cost of the false promotional campaign. See Wheelan, Murray 2021. 136 See Webb 2021. 133
INFRAS | 3 May 2021 | Summary
