Supervising the environmental, social and governance impact of finance

The ongoing debate on sustainable finance indicates that authorities who supervise the many players of the financial sector can have an important role in better assessing, and improving, the environmental, social and governance (ESG) impact of finance. A new (technical) SOMO paper, Supervising the ESG impact of finance, explains why this supervisory role should be performed, and how this can be done based on legal mandates of European and national supervisory authorities.

In the context of the ongoing revisions of EU financial laws, this paper proposes what further legislative changes would integrate environmental, social and governance considerations firmly and more explicitly into the supervision of the EU’s financial sector. This paper intends to make a contribution to the discussions by those engaged in the EU financial reform process and in improving the sustainability impact of the EU financial sector.

The paper elaborates how to complement the European Commission’s legislative proposal for the revision of the mandates of the European Supervisory Authorities (ESAs): the European Banking Authority (EBA), the European Securities and Markets Authority (ESMA) and the European Insurance and Occupational Pensions Authority (EIOPA). In addition, this paper advises in a concrete way how to amend sectoral financial laws to further clarify and strengthen the mandates of the national supervisors who are performing the main supervisory functions, and the ESAs who are coordinating and have oversight of national supervisors.