A new report finds disclosure regulations and reporting requirements are reshaping sustainable finance across Europe, while data quality and reporting consistency remain key challenges.
The sustainable finance industry in Europe is becoming more and more mature thanks to new rules on disclosure and reports shaping the practices in the region, a report issued by the Association of the Luxembourg Fund Industry (ALFI), the Luxembourg Sustainable Finance Initiative (LSFI), and PwC Luxembourg revealed.
The document studies the effect of recent regulations in the area on sustainable investments and how investors and financial institutions adjust to new reporting obligations.
The research shows that sustainable finance has ceased to be a specialised niche in the world of investments. Regulatory actions taken in recent years forced businesses and financial institutions to increase disclosures on sustainability in respect to investors.
Among other regulations, the researchers point out the Sustainable Finance Disclosure Regulation (SFDR) and the Corporate Sustainability Reporting Directive (CSRD), which make businesses disclose sustainability risks, impacts on the environment, and other non-financial information.
Investors pay more attention to facts that prove sustainability statements, which makes fund managers and financial institutions provide more details instead of making environmental or social statements.
In addition, the report mentions Luxembourg's role in the European fund market. The country continues to be among the largest European investment fund centres and houses many sustainable investment products that follow EU regulations.
Despite market growth, several challenges are outlined by researchers. Varied approaches to reporting, changes in the regulatory framework, and lack of sustainability data are the main issues faced by investors and financial entities.
According to the authors, businesses in Europe have started adapting to the disclosure rules due to the increasing need for transparency in financial markets. In addition, the authors state that uniform reporting standards would allow investors to compare the sustainability data of companies and investment products.
This report is another step in the examination of the incorporation of environmental and social risks in financial markets.
According to the authors, further development of the market will depend on companies' approach to reporting and regulators' response to data and disclosure issues in the European market.
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