Green Finance

In recent years green finance has become a major topic of discussion among European legislators and financial market actors. The prevalence of this topic is attributable in no small part to the European Green Deal of 2019, which foresees extensive climate investment to fulfill the goals of the 2015 Paris agreement. According to the European Commission and national authorities, the financial sector has a key role to play in the green transformation of the economy and society. Specifically, as a supplement to fiscal policy action, the financial sector is being called upon to channel more capital toward climate resilience and sustainable development.

“Green finance” typically refers to investment measures that serve ecological and climate goals. Yet the term also encompasses regulatory measures that aim to ensure transparency, guide financial flows, support risk management, and prevent greenwashing. A key pillar of this regulatory framework is the EU taxonomy for sustainable activities, which defines criteria for measuring the environmental performance of economic activities. This “green taxonomy” aims to provide market actors with reliable standards for making ecological investment decisions. EU legislators have also established comprehensive disclosure obligations for financial institutions and companies. These obligations represent a second important pillar of the regulatory framework for green finance, because they ensure the disclosure of environmental performance information. Such information is a crucial enabler of investment decisions that serve sustainability.

The clean-energy transition is bringing about fundamental changes in the function and organization of the financial sector and monetary system. As a result, new demands are being placed on central banks and market regulators. The interdisciplinary approaches pursued by researchers at the House of Finance are of particular benefit for the study of policy measures designed to enable climate-friendly investment. Indeed, insights from a range of fields – including law, sociology, economics, and natural sciences – are essential for assessing the impact of policy measures on financial markets and the real economy as well as for ensuring an effective regulatory regime.