Europe’s sustainability rules are under attack: Here’s how your money can still play a role

How is the transition influenced by our investments?

Financial flows have a powerful role to play in financing the transition to a sustainable economy. This also accounts for household savings and investments. The money sitting in ordinary people’s savings and investment accounts represents a vast force for change.
Financial resources can accelerate the green transition in two main ways:

• First, they can provide direct financing to companies that invest in sustainable activities, such as renewable energy, clean mobility, or energy efficiency.
• Second, they allow investors to influence companies’ behaviour .

This influence can come through conditional financing; for example, loans with lower interest rates if sustainability targets are met (so-called sustainability-linked loans). It can also happen through shareholder engagement, where investors use their voting rights to push companies toward stronger environmental and social standards. Finally, it can send share price signals, leading investors to turn away from harmful investments.

Many people forget that their personal money also plays a part in shaping the sustainable development of our economy, from the bank where they choose to open a savings account to the investments they decide to make.

Your savings could have a better impact

The bank you choose will determine the projects your money will be financing. That’s because when you deposit money in a savings account, you’re lending it to your bank. The bank pays you interest and uses your deposits to fund loans and investments that earn higher returns. This means that even if you never buy a stock or a bond, your bank is investing your money. The projects and companies it chooses to fund can either support or harm environmental goals.

Some banks have made strong commitments to stop financing new fossil fuel extraction and to align their lending with the Paris Agreement, which commits to limiting global warming. To help you choose, it is therefore essential that banks publish clear sustainability policies and transition plans, giving you the confidence that your deposits aren’t quietly undermining your climate values.

So, how can you tell whether your bank supports the transition?

There are a few tools available – but they all come with caveats. ESG ratings, for example, offer an at-a-glance comparison of how companies or banks perform on environmental, social, and governance criteria. However, these ratings are not all the same: some measure how exposed a bank is to sustainability risks, while others assess its impact on society and the environment. In 2024, Finance Watch worked to improve transparency and oversight of ESG ratings, so that investors can make informed choices rather than being misled by unclear methodologies.

You can also look at your bank’s yearly sustainability report and investment policies. While often lengthy and complex, these documents reveal whether a bank has adopted a credible transition plan consistent with the Paris Agreement. For this reason among others, Finance Watch strongly supports maintaining a broad scope of companies required to publish such reports under the upcoming Omnibus I reform.

The hidden gap between your values and your investment portfolio

Beyond savings, many retail clients invest through financial products such as mutual funds, ETFs, or pension plans. These allow small investors to pool their money and gain exposure to a broad range of companies. In most cases, individuals don’t buy shares directly but invest in funds managed by professionals. Here, the key question becomes: what is the fund’s investment strategy?

The Sustainable Finance Disclosure Regulation (SFDR) introduced a disclosure regime for funds that state integrating sustainability factors in their investment strategy. In these disclosures, investors can find information about how much the portfolio is aligned with the EU Taxonomy for environmentally sustainable activities, how it considers adverse impacts on people and the planet, and what share of its holdings qualify as sustainable investments. 

Unfortunately, today’s disclosures are often too complex and inconsistent for retail investors to navigate. This makes it difficult to know whether a fund marketed as “green” or “ESG” is actually helping the transition — or just engaging in greenwashing. That’s why Finance Watch is calling for clear, simple, and harmonised rules on sustainability disclosures for all financial products. Every investor should understand where their money goes.

Yes, you can ask for investment advice in line with your values

Since August 2022, banks and investment advisors in the EU have been required to ask clients about their sustainability preferences when giving investment advice and portfolio management services. In practice, however, the system remains confusing as it relies on SFDR criteria that are poorly defined, and it is insufficiently harmonised. 

Each bank can design its own questionnaire, set its own thresholds, and define what ‘standard sustainability criteria’ mean. This flexibility approach weakens the credibility and comparability of sustainability preferences across the market. Finance Watch is therefore urging regulators to harmonise these rules under the Markets in Financial Instruments Directive (MiFID) and Insurance Distribution Directive (IDD) frameworks –  two key pieces of European financial regulation that protect consumers when they receive financial advice – so that every investor can clearly express their sustainability goals and see them reflected in their investment choices. The ongoing revision of the SFDR is the opportunity to adapt the retail transparency framework to foster simplicity, understandability and transparency.

For the revision of SFDR, Finance Watch advocates for simpler, stronger sustainable finance rules:

• Minimum sustainability disclosures for all financial products, not just those that claim to be “green”
• New, well-defined product categories with clear minimum criteria, so investors can identify genuinely sustainable options
• Consistency with the consideration of sustainability preferences 

These reforms would empower retail investors to make informed, confident decisions, and ensure that sustainable finance truly drives the transition rather than just marketing it.

At Finance Watch, we’re pushing for stronger EU rules, exposing greenwashing risks, and empowering citizens to demand that their money serves the public good.

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Towards greener investment practices

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