The HLEG on Sustainable Finance has invited all citizens to provide feedback to their Interim report via a non-technical questionnaire by Sept. 20th. Early feedback received by Sept. 6th will contribute to next HLEG discussion on Sept. 11th. 



In this post we publish the replies from IMT Alti Studi Lucca, member of the DOLFINS Consortium. The future of Europe depends on Sustainable Finance. Citizens have the unique opportunity to contribute to the debate at an early stage, well before the policy proposal is issued. The FET-funded project DOLFINS is supporting this effort. The contributions of DOLFINS members are published in a series of blog posts on the simpolproject platform and on our twitter profile .


Question 1. From your constituency’s point of view, what is the most important issue that needs to be addressed to move towards sustainable finance? (sustainable finance being understood as improving the contribution of finance to long-term sustainable and inclusive growth, as well as strengthening financial stability by considering material environmental, social and governance factors).

Reply: As the HLEG report remarks, it is essential for the financial system to reconnect with the society it is meant to serve. Also, responding to the challenge of long-term sustainable development is a powerful way for financial institutions to reclaim the positive role they can play in the society. However, long-term sustainability risks and opportunities do not need to move “from an add-on consideration to a built-in feature” solely in ratings. They need to be put at the hearth of definitions, metrics and models. It is crucial to recognize that the standard economic and financial theory has not provided (because it cannot provide) a stable, let alone sustainable, financial environment. This is why we need new scientific models to tame and then exploit the complexity of instruments, practices and regulations within the financial systems. We have to explicitly take into account the complex patterns of interconnections among the various financial actors. Sustainability can be steady only when it becomes a systemic property, emerging from such network of interactions without externalities. Alternative approaches to mainstream models, based on network theory and which we work on within the DOLFINS consortium in collaboration with central authorities like the ECB and Bank of England, are now mature enough to enter in the decision-making and supervision process, and are essential for sustainability to come true.

Question 3. What considerations should the EU keep in mind when establishing a European standard and label for green bonds and other sustainable assets? How can the EU ensure high-quality standards and labels that avoid misuse/green-washing?

Reply: An important issue to consider is that data on investment chains and supply chains is usually not available, which prevents estimating the indirect effects of both risk exposure and impact of portfolios, and at the end to define a well-grounded taxonomy for green bonds. More generally, current limitations on financial data availability poses a threat to stability and sustainability. While the HLEG report highlights that the levels, quality and frequency of disclosure and reporting by firms and financial institutions are insufficient to enable informed decision-making and oversight, these might be also insufficient for establishing standards and labels for sustainable assets. For instance, data on equity and bonds ownership is privacy-protected, and as such it is difficult to estimate the exposure of financial institutions to green and brown projects. More worryingly, it is difficult to estimate bilateral exposures of financial institutions and thus track the potential reverberation of equity losses within the financial system. Finally, in the HLEG document it is argued that the practice of listed firms to report on their financial performance quarterly requires continuous attention to short-term indicators, at the expense of a longer-term focus. However, until short-termism dominates, central authorities need frequent reporting in order to promptly spot and face potentially systemic events, and at the end ensure the stability of the system.

Question 5. It is frequently stated that the inherent short-termism in finance, especially financial markets, represents a distraction from, or even obstacle to, a long-term orientation in economic decision-making, including investments that are essential for sustainability. Do you agree with this statement?

Reply: Yes.

Question 6. What key levers do you think the EU could use to best align the investment and analyst community with long-term sustainability considerations in the real economy?

For the financial system to become sustainable, it is very important to give incentives and protection to those who take long-term investment decisions, who also should not be disadvantaged in terms of reporting burden and commercial risks. In order to quantify the sustainability of each investment and thus the amount of incentives to provide, we need to extend the current metrics of risk and impact to incorporate two main aspects. The first one is financial stability, as measured by systemic risk and impact arising from the interconnectedness within the financial system, allowing for the propagation of losses among financial actors. The second one is sustainability, taking into account for instance the direct impact on climate action, as well as indirect impact via supply chain and indirect exposure via investment chains. To quantify both these aspects we need granular data on assets composition, as well as a network-based approach to model risk propagation as well as spillover effects.

Question 8. What are some of the most effective ways to encourage credit rating agencies to take into consideration ESG factors and/or long-term risk factors? Please choose 1 option from the list below.

  • Create a European credit rating agency designed to track long-term sustainability risks
  • Require all credit rating agencies to disclose whether and how they consider TCFD-related information in their credit ratings
  • Require all credit rating agencies to include ESG factors as part of their rating
  • All of the above
  • Other

Reply: All of the above.

Question 12. Do you have any comments on the policy recommendations or policy areas mentioned in the Interim Report but not mentioned in this survey?

Reply: The HLEG report provides a solid base for a fruitful discussion on how to promote sustainable finance. Recommendations on the involvement of society in these issues are very important, and should be further emphasized in the final report. In particular, the proposed ‘observatory’ function at the EU level would have a crucial role in the definition of a common framework of methods and tools, and even more in aggregating data at of the highest possible granularity coming from a very diverse set of sources. This is essential for any taxonomy, incentive scheme and policy intervention to be effective. In parallel, the proposed public goods research unit would give a vital contribution to the development of financially focused sustainability metrics. By monitoring ESG disclosure by firms and institutions, and providing public league tables of firms’ sustainability performance, the unit would enable greater awareness and engagement of society on these issues. Production of sustainability research cannot be however limited to this unit, as the development of new theoretical models accounting for the complexity of the financial system and of the society as a whole represents a challenging scientific task. Researchers from all over Europe should be involved towards this aim, which thus can be hardly achieved without securing a multi-annual funding framework (2018-2020) in H2020 & Life budgets to finance research in the field of green and sustainable finance.