ESG Targets for the Financial Sector and the Choice of Legal Instruments

Environmental, Social and Governance (ESG) is a topic of high priority within financial supervisory law. Climate change and the challenges of our time create an urgency for effective and efficient legislation and regulation. This chapter deals with the question of which legal instruments are appropriate to incorporate ESG goals into the business of financial institutions and related internal and external supervision. The European legislative framework on sustainability and Green Finance is materializing increasingly, notably through the Transparency Regulation and Taxonomy Regulation. European laws and regulations are not exhaustive, there is room for ambitions and goals that are formulated in the sphere of self-regulation, soft law and corporate governance. ESG regulation therefore lends itself to an approach from a multilevel governance perspective. The impact financial institutions have and how they contribute to ESG objectives should be reflected in regulation and supervision in an evidence-based way. Ideally, markets act as a feedback mechanism to regulators and legislators. This will be particularly valuable for longer-term objectives and in the fight against green-washing. ESG strategies and targets and their realization should be observable in practice. In this way, accountability can also be demonstrated, not only towards regulators, but towards all stakeholders of financial institutions.