The EU Sustainable Finance Action Plan represents a market-oriented policy framework designed to address the substantial investment gap required for Europe’s transition to a net-zero economy by 2050. By mandating the disclosure of environmental, social, and governance (ESG) criteria in investment processes, the framework aims to redirect private capital flows, mitigate greenwashing, and foster a coherent sustainability agenda in the European investment landscape. However, its implementation has exposed significant ambiguities, leading to diverse compliance practices and inconsistent sustainability strategies, even within equally classified sustainable investment funds.
This study examines how sustainability strategies are developed and operationalized in sustainable investment funds, focusing on how private actors navigate the regulatory requirements of the Action Plan while managing the inherent sustainable investment dilemma: balancing compliance with sustainability goals and maintaining sufficient risk diversification. Through document analysis, semi-structured interviews with financial and non-financial actors, and participant observation at a sustainable investor summit, the study explores the meso-level dynamics shaping the European sustainable finance landscape.
The findings reveal that the emergence of diverse sustainability strategies stems from incomplete and ambiguous regulatory requirements. Proprietary methodologies and selective interpretations of the Action Plan create variability in investment funds’ sustainability thresholds and practices, allowing to maintain broad investment universes while meeting regulatory demands. Furthermore, the study highlights the critical role of non-financial actors, such as ESG rating agencies, auditing firms, and ESG consultancies, in shaping the institutional arrangements that facilitate compliance. While these actors provide essential data and expertise, their competitive positioning in the expanding sustainable finance market can compromise the European transition objectives.
The analysis suggests that the fragmented and collaborative nature of the sustainable investment network contributes to regulatory incoherence, limiting the regulatory framework's ability to fully integrate ecological considerations into financial decision-making. This research advances the field of economic sociology by uncovering the tensions inherent in public-private governance approaches to climate change mitigation. It underscores the challenges of implementing coherent and impactful sustainable finance policies in a globalized and uncertain economic context.
