Towards an EU Impact Investing Framework

Sustainability-oriented investors want to pay for impact, not
compliance. We analyse the regulatory challenges and
opportunities of impact investing. We find that advancing impact
investing requires a departure from the EU Sustainable Finance
Framework’s (EUSFF) prevailing input-orientation and an
adjustment of EU asset-management law towards an EU Impact
Finance Framework.
In its current form, the EUSFF over-emphasises exclusion, using
rule-based ex ante definitions of sustainable business (herein
termed input). The EUSFF alone cannot prevent global capital flows
into unsustainable investments, and non-EU countries follow
different approaches. Although the EUSFF encourages, in effect,
the sale of unsustainable EU businesses to non-EU firms, its input
orientation has not helped the planet: the same activities continue
elsewhere, often under weaker environmental and social
standards, leaving the planet worse off. Further, the EUSFF’s
disregard for proven ex post impacts risks large-scale capital
misallocation and “impact washing”.
We argue for shifting EU financial regulation from input to (proven)
impact. Yet, rather than adding a new product category, we
propose recognising positive impacts through five fine-tuned steps
that simplify EU financial regulation, taking into account regulatory
developments in the United Kingdom and Switzerland