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Towards a Smart Regulation of Sustainable Finance

In: The Palgrave Handbook of ESG and Corporate Governance

Author

Listed:
  • Dirk A. Zetzsche

    (University of Luxembourg)

  • Linn Anker-Sørensen

    (University of Oslo)

Abstract

We identify as core issues of any sustainability-oriented financial regulation a lack of data on profitability of sustainable investments, a lack of broadly acknowledged theoretical insights (typically laid down in standard models) into the co-relation and causation of sustainability factors with financial data, and a lack of a consistent application of recently adopted rules and standards. The three factors together hinder as of now a rational, calculated approach to allocating funds with a view to sustainability which we usually associate with “finance”. In order to avoid undesirable and unforeseeable effects of regulation, we argue against any regulation addressing capital requirements, mandating sustainability risk modelling or the inclusion of sustainability factors in investment or remuneration policies. Instead, regulators should focus on enhancing expertise on the side of intermediaries and supervisors alike. In particular, regulators shall introduce smart regulation tools, such as regulatory sandboxes, innovation hubs and waiver programmes benefiting early adopters of sustainable finance modelling/models, utilizing approaches developed in other fields of experimental financial regulation (in particular Fintech and RegTech).

Suggested Citation

  • Dirk A. Zetzsche & Linn Anker-Sørensen, 2022. "Towards a Smart Regulation of Sustainable Finance," Springer Books, in: Paulo Câmara & Filipe Morais (ed.), The Palgrave Handbook of ESG and Corporate Governance, chapter 0, pages 87-113, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-99468-6_4
    DOI: 10.1007/978-3-030-99468-6_4
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