On June 6, 2021, the European Commission published the Strategy for Financing the Transition to a Sustainable Economy which sets out a series of actions to better integrate sustainability into the financial services sector. It builds on the 2018 Action Plan on Financing Sustainable Growth by devising stronger measures to achieve the new objectives under the European Green Deal, and to sustainably recover from the COVID-19 pandemic. In particular, an estimated €350 billion per year in additional investment over this decade is needed to meet the Green Deals’ 2030 emissions-reduction target in energy systems alone, in addition to €130 billion to achieve other environmental goals.

The revamped sustainable finance strategy, therefore, complements environmental regulation in providing a sustainable finance roadmap that seeks to increasingly channel private financial flows towards relevant sustainable economic activities, bypassing unsustainable activities and assets likely to become stranded, and better involve financial institutions. While the Commission has progressed in implementing the 2018 Action Plan, for instance by recently publishing the proposal on Corporate Sustainable Reporting Directive, the new strategy identifies areas where more measures are needed to address the new challenges. The strategy reorganizes work around the following four main pillars to achieve six sets of actions.

Pillar 1: Financing the Transition of the Economy Towards Sustainability

The Commission readily accepts that economic actors’ transition will vary due to different starting points and business strategies, as long as such efforts are “ultimately (…) consistent with the EU’s sustainability goals.” Under Action 1 the Commission aims to develop a more comprehensive framework and to help finance intermediary steps towards sustainability. To do so, among others, it will:

  • consider proposing legislation to support the financing of certain economic activities, primarily in the energy sector, including gas, that helps to reduce greenhouse gas emissions;
  • consider options for extending the EU Taxonomy framework to possibly recognize economic activities performing at an intermediate level;
  • adopt a Complementary EU Taxonomy Climate Delegated Act covering new sectors including agriculture and certain energy activities; and
  • consider a general framework for labels for financial instruments, and work on an ESG Benchmark label, minimum sustainability criteria for financial products that promote environmental or social characteristics.

Pillar 2: Towards a More Inclusive Sustainable Finance Framework

The Commission aims under Action 2 to improve the inclusiveness of sustainable finance by involving and drawing on the strengths of all actors and tools which can contribute to sustainable finance. These range from enhancing retail investors’ and SMEs’ access to sustainable financing, to adapting insurance coverage and digital technologies. In particular, the Commission will:

  • ask the EBA to explore options to facilitate the uptake of green loans and mortgages by 2022, and increase citizens and SMEs’ access to sustainable finance advisory services; and
  • identify insurance protection gaps in relation to climate risk coverage, and initiate a Climate Resilience Dialogue with all relevant stakeholders by 2022.

Pillar 3: Improving the Financial Sector’s Resilience and Contribution to Sustainability: the Double Materiality Perspective

Under Action 3 the Commission makes clear that double materiality must be integrated into the financial sector workings to enhance economic and financial resilience to sustainability risks. In doing so, Commission commits in particular to:

  • work with EFRAG, ESMA and the IASB on how financial reporting standards can best capture relevant sustainability risks;
  • take action to ensure that relevant ESG risks are systematically captured in credit ratings and rating outlooks in a transparent manner;
  • propose amendments in the Capital Requirements Regulation and Capital Requirements Directive to ensure the consistent integration of sustainability risks in risk management systems of banks, including climate change stress tests by banks this year;
  • propose amendments to the Solvency II Directive to consistently integrate sustainability risks in risk management systems and supervision of insurers, including climate change scenario analysis by insurers this year.

Under Action 4, the Commission seeks to ensure the financial sector steps up its contributions to sustainability, by:

  • improving financial institutions’ disclosures of sustainability targets and transition planning;
  • asking EIOPA to assess the need to review the fiduciary duties of pension funds and investors to reflect sustainability impacts, including stewardship and engagement activities by 2022; and
  • taking action to improve the reliability and comparability of ESG ratings and further assess certain aspects of ESG research, to decide on whether an intervention is necessary.

Lastly, under Action 5 the Commission seeks to monitor the orderly transition and ensure the integrity of the EU’s financial system, in particular by:

  • monitoring greenwashing risks;
  • developing a robust monitoring framework to measure capital flows and assist Member States in assessing the investment gap and progress made by their financial sectors by 2023;
  • strengthening cooperation among all relevant public authorities (Member States, the ECB, the ESRB, the ESAs, EEA) to work towards a common approach to monitor an orderly transition and ensure the double materiality perspective is consistently integrated across the EU financial system by 2022; and
  • establishing a Sustainable Finance Research Forum to foster knowledge exchange between researchers and the financial community.

Pillar IV: Fostering Global Ambition

This Pillar reflects the international prominence of the challenge of reforming financial services towards greater sustainability. Under Action 6, the Commission aims to set a high level of ambition in developing international sustainable finance initiatives and standards and to support EU partner countries. To do so, the Commission will:

  • seek an ambitious consensus in international forums, mainstream the concept of double materiality, stress the importance of disclosure frameworks, and agree on objectives and principles for taxonomies;
  • propose to expand the work of the IPSF to new topics and strengthen its governance; and
  • support low- and middle-income countries in scaling up their access to sustainable finance by developing a strategy and by promoting sustainability-related financial instruments.


The Commission has laid out a comprehensive strategy to reform the financial sector towards sustainability, consisting of both new (non) legislative measures and restatements of measures announced previously. The short timeline against which the actions are set demonstrates these reforms are among the EU’s priorities.

Overall, the strategy not only aims to ensure the financial sector’s resilience against the risks posed by climate change, but also to ensure that financial institutions fully get on board and contribute to the European Green Deal’s objectives under the banner of double materiality, and that investments are increasingly channeled towards sustainable activities as defined in the EU Taxonomy.

While the strategy will result in new legislative initiatives which will affect financial institutions in a variety of ways, including how they market and label their services, report data, and consider social factors in their strategies, the strategy falls short on details as to how the EU aims to tackle greenwashing other than noting the Commission will “consider steps to ensure a sufficient, consistent level of enforcement and supervision to address greenwashing”. The Commission has committed to reporting on the implementation of the strategy by the end of 2023, which will provide the opportunity to assess the progress made.