The Regulatory Dynamics of Sustainable Finance: Paradoxical Success and Limitations of EU Reforms

The financial sector has seen a transformation towards 'sustainable' finance particularly in Europe, driven also by unprecedented regulatory reforms. At the same time, many are sceptical about the real impact of these reforms, fearing that they are triggering a paradoxical financialisation of sustainability. Building on recent research on institutional logics and institutional fields formation, we examine changes in the EU regulatory dynamics as characterised by shifts in framing the relationship between sustainability and finance. Deploying a longitudinal approach (2009-2019), consisting of archival data and semi-structured interviews, we explore the development of EU sustainable finance regulation as an extended, interactive and contested process. Specifically, we suggest that regulatory dynamics depend on the hybrid configuration of the social constituencies supporting sustainable finance reforms and on shifts in the overall prevalence of the financial logic in society. Our paper sheds light on the inherent contradictions and limitations of sustainable finance as a means for transformative sustainability reforms.

Automated summary

The financial sector in Europe is transitioning towards 'sustainable' finance, driven by regulatory reforms, but there are concerns about the real impact of these reforms and the potential financialization of sustainability. Research suggests that regulatory dynamics depend on the hybrid configuration of social constituencies supporting sustainable finance reforms and shifts in the prevalence of financial logic in society. This sheds light on the contradictions and limitations of sustainable finance as a means for transformative sustainability reforms.