The Brussels Effect on Sustainable Finance

The European Parliament and Council have reached a provisional agreement to reduce greenhouse gas emissions by 55% by 2030 and to reach net-zero emissions by 2050. This continues Europe’s global leadership in climate action, from issuing the first green bond in 2007 to the Euro established as the global currency for sustainable finance. The European Stability Mechanism also designed a €240bn pandemic response credit line, financed by social bonds. Moreover, the European Commission announced that 30% of the €750bn EU recovery fund will be financed with green bonds. Finally, the EU taxonomy will extend well beyond the continent as multinational corporations follow the regulations to gain access to consumer markets. Given the costs of adjusting operations to multiple regulatory regimes, firms have a strong incentive to construct their ESG portfolio to align with the taxonomy as it has become the global standard.