The EU regulation of sustainable investment: The end of sustainability trade-offs?

Abstract

Objective: The objective of the article is to explore and assess whether the SFDR legal framework creates a legitimate, effective, and efficient mechanism that supports a genuinely sustainable investment and eliminates greenwashing and other trade-offs. It targets the Regulation (EU) 2019/2088 on sustainability-related disclosures in the financial service sector aka SFDR which sets a law duty on financial market participants and advisers concerning information about sustainability (Art. 1). Corporate Social Responsibility (CSR) parasitic practices, such as greenwashing, are to be eliminated in disclosures, communications, and internet pages (Art. 9 – Art.13) by appropriate information (Art. 1(17)) and the principle of doing no significant harm (Art. 2a).

Research Design & Methods: A deep holistic five-step chronological contextual analysis of key legislative and semi-legislative instruments with LIWC assessment was performed. It was supported with a comparative and teleological interpretation and refreshed with Socratic questions.

Findings: The research led to four rather unexpected propositions: (i) the endorsement of SFDR by EU institutions varies, (ii) key instruments are expressed neutrally and technically but their authenticity varies, (iii) morality appears to be avoided, and (iv) the interpretation litigates against an artificial disassociation of concepts linked to sustainability, CSR, and shared values.

Implications & Recommendations: Since the performed analysis was instantaneous and textual and led to rather unexpected propositions, it should be juxtaposed and extended by adding the longitudinal dimension, the applied dimension, and the outside perspective along with empirical field observation.

Contribution & Value Added: This is a pioneering study regarding the wording assessment of the EU law on sustainability. Considering the critical importance of a legitimate, effective, and efficient legal framework in this area and the pre-existing academic vacuum regarding such an exploration of SFDR and related instruments, this contribution is a valuable first step.

Keywords

Corporate Social Responsibility (CSR), Regulation 2019/2088 (SFDR), sustainable investment

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