EU initiatives give hope for more sustainable business and finance

Which EU policies are most likely to deliver sustainable business and finance? The most promising pathways of action seem to be the Sustainable Finance, the Single Market and the  Circular Economy initiatives, argues SMART researcher Hanna Ahlström.

To ensure sustainable development, there is not only a need to re-think how the economy is organised, but also the regulatory system that governs it. Business and finance law reforms will represent an important part of such a transition.

Unfortunately, little progress has been made when it comes to integrating sustainability in legal requirements, with EU business and financial market law still not having been subject to systematic analysis  in relation to sustainability.

Post-CSR regulation and finance

The EU’s corporate social responsibility (CSR) action seems to have stalled, and a renewed strategy is unlikely to come out any time soon. The main argument from the EU seems to be that the agenda from 2011 has yet to be fully implemented.

The UN Guiding Principles on Business and Human Rights were endorsed by the European Commission (EC) in the EU 2011 Strategy on CSR. However, they were not referred to in the EU Communication that implemented the 2030 Agenda in 2016, signaling that CSR and business and human rights issues may now have declined in importance for the EU.

In 2016, the EC established the High-Level Expert Group on Sustainable Finance to advise them on developing the Action Plan ‘Financing Sustainable Growth’. In a recent study, I argue that the decreasing interest in CSR and the recent interest in sustainable finance have some distinct causes:

  • Corporate financialisation of EU policy
  • The shareholder maximisation norm
  • An action agenda on non-binding measures

The increased attention on sustainable finance could partly be explained by the general process of how our economy becomes increasingly financialised.

Corporate financialisation refers to the increasing dominance of financial actors, markets, practices, measurements and narratives at various scales, resulting in a structural transformation of economies, firms (including financial institutions), states and households.

In other words; profit-making is increasingly occurring through financial channels rather than through non-financial strategies in the real economy, such as trade and commodity production.

The shareholder maximisation norm

The shareholder maximization norm is central to the issue of corporate financialisation. The norm states that the main purpose of the corporation is to maximise returns to shareholders.

The reason is that the corporation is seen as the shareholders’ property, or as a ‘nexus of contracts’ in which the shareholders’ needs to come first.

A major problem with this norm is that this narrow focus limits the possibility to change corporate behaviour. There is a need to include regulation and governance of business decision-making in the toolbox for sustainability.

The EU’s actions seem to have inherited a path dependency created by these policy approaches, which have largely informed EU business and financial market law. This situation have contributed to internalising corporate financialisation processes in EU policy-making, and seems to limit the EU’s ability to create sustainable legislation.

Some promising trends

While there are constraints to the EU’s ability to speed up sustainability, I have recently identified what I call ‘policy hotspots’.

Policy hotspots are business and financial market-relevant policy areas that are the most promising ones due to political will and allocated resources to advance the EU’s commitment to sustainable development.

These policy hotspots have the potential to advance the EU’s commitment to sustainable development and they represent two tentative pathways of action for achieving sustainable business and finance in the EU:

  • The Sustainable Finance initiative
  • The Single Market and the Circular Economy agenda

While there certainly are challenges associated with corporate financialisation, the Sustainable Finance initiative represents a potential pathway to advance the EU’s commitment to sustainable development as it has widespread industry support and multiple member states have lead the way with important national legislation. An example is France with its Energy Transition for Green Growth Act and Article 173 that introduced measure to integrate climate change into the decision-making process of financial institutions. The EU’s Sustainable Finance initiative has also been developed under a short time period, with high ambitions for implementation before the next European Commission will take office.

At the same time, it needs to be noted that the agenda represents the amplified role of corporate financialisation in the economy, furthering focus on the growth of finance, which may result in retaining a focus on shareholder maximisation. However, it is not possible to analyse the results from the initiative since it has not been fully implemented yet.

The second tentative pathway consists of the Single Market and the Circular Economy agenda. It is also still too early to say whether this pathway offers a basis for corporate transformation.

However, one interesting aspect to consider on this topic is that there seems to be untapped potential when it comes to the standardisation and use of new rules on recycled materials. A classification system for raw materials could result in multiple synergies for European businesses in the single market. These policy areas also have high level of political support. However, due to our limited knowledge regarding such synergies, it remains to be seen what they will result in.


This blog post is based on the research article ‘Policy Hotspots for Sustainability: Changes in the EU Regulation of Sustainable Business and Finance’, written by Hanna Ahlström and published in Sustainability, Volume 11 (2019) issue 2.

The author would like to warmly thank Professor Beate Sjåfjell and David Monciardini, PhD thesis supervisors.

By Hanna Ahlström
Published Feb. 13, 2019 10:15 AM - Last modified Feb. 13, 2019 10:38 AM
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