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Will the EU Commission Successfully Integrate Sustainability Risks and Factors in the Investor Protection Regime? A Research Agenda

by Michele Siri 1 and Shanshan Zhu 2,*
1
Jean Monnet Professor on Financial and Insurance Markets Regulation, University of Genoa, Via Balbi 22, 16126 Genoa, Italy
2
Post-Doctoral Researcher in Corporate Law, University of Genoa, Via Balbi 22, 16126 Genoa, Italy
*
Author to whom correspondence should be addressed.
Sustainability 2019, 11(22), 6292; https://doi.org/10.3390/su11226292
Received: 3 October 2019 / Revised: 24 October 2019 / Accepted: 5 November 2019 / Published: 8 November 2019
Building a common EU framework for sustainable finance undoubtedly implies the integration of sound and sustainable processes and skills across the whole structure and governance of financial institutions. Consequently, a new financial paradigm is going to be needed, which will require the strengthening of investor care and protection, so contributing to the restoration of trust in the financial sector. In particular, on 18 December 2018, the European Securities and Markets Authority (ESMA) launched two public consultations on draft technical advice for the integration of sustainability risks and factors into the Directive on Markets in Financial Instruments (MiFID), the Alternative Investment Fund Managers Directive (AIFMD), and the Undertakings for Collective Investment in Transferable Securities Directive (UCITS) regimes, with the aim to clarify the so-called fiduciary duties and to increase transparency in the financial services industry. However, the success of the EU initiatives on investor protection regulation may be seriously endangered by the existence of many challenges, weaknesses, and contradictions raised by economists and stakeholders in relation to the definition of sustainability, ESG data availability and reliability, the development of an EU taxonomy, conflicts of interest, product governance, and suitability assessment. This paper starts by briefly analyzing the recent developments of the regulation of sustainable finance at the global level, then offers a more detailed view on the establishment of a common regime on sustainable finance in the EU, with particular reference to the action plan ‘Financing Sustainable Growth’. Then, it examines the recent proposals for regulation on sustainable finance, specifically considering the barriers to the integration of sustainability risks and factors in the EU investor protection regulation—with particular reference to investment services—with respect to its four main dimensions: (1) disclosure of product information, (2) conduct of business (COB) rules, (3) product governance and intervention, and (4) financial education. The paper concludes that the EU reforming proposals, though admirable, risk oversimplifying a complex issue that cannot be easily solved without considering its practical implications on each category of financial operators in the performance of different financial services.
Keywords: sustainable finance; investor protection regulation; ESG investing; EU law; non-financial reporting sustainable finance; investor protection regulation; ESG investing; EU law; non-financial reporting
MDPI and ACS Style

Siri, M.; Zhu, S. Will the EU Commission Successfully Integrate Sustainability Risks and Factors in the Investor Protection Regime? A Research Agenda. Sustainability 2019, 11, 6292.

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