Sustainability and finance: utopian oxymoron or achievable companionship?

At European Union level a number of legislative acts have been recently put in place with a view to favouring the transition towards a sustainable economy and a sustainable society. As to the financial sector, the most relevant legislative acts adopted in this regard are the Taxonomy Regulation and the Sustainability-Related Disclosure Regulation. Together these regulations have created a new system relating to sustainability in doing business through the introduction of criteria against which economic activities and investments will be classified as sustainable and through disclosure obligations. With such a new legislation in place, the financial sector is expected to favour the channelling of capital towards sustainable economic activities. Yet, the two regulations concerned do not prohibit the performance of economic activities that are qualified as not sustainable, which, as a consequence, can continue to be carried out. It follows that the system introduced by the Taxonomy Regulation and the Sustainability-Related Disclosure Regulation is a disclosure-based one which will be effective depending on the market reaction, id est on whether financial service providers and investors will also care about the sustainability of their investments and not only about returns. Still, the critical issue in this regard relates to the timing as international agreements recently signed have set very ambitious environmental and social goals to be reached in a relatively short period of time. Hence the question arises whether the new disclosure-based system will be enough to achieve such goals or whether a more intrusive policy approach, for example based on tax incentives and tax burdens, will become necessary.