On 4 April 2024, the European Commission (the Commission) published a Progress Report on the Platform on Sustainable Finance’s Monitoring Capital Flows to Sustainable Investments.

The Report outlines that the European Union must scale up its investments in reaching climate and environmental targets by at least two thirds by 2030, relative to average levels mobilised during the last decade. The majority of relevant financing is expected to come from private financial markets and as such, the Report highlights that a methodological framework is needed to monitor the flow of private capital, to fill the investment gap.

The Report therefore offers a methodology which mainly rests on capital flows. Two types of flows are considered:

  1. Capital expenditures in real economy entities, which shed light on progress towards filing the investment gap.
  2. Flows in and from financial markets, as this represents an important source of capital in support of real economy investments.

In the methodology’s first iteration, regulatory definitions and disclosures are default data sources where available and are complemented by market definitions and data until the regulatory frameworks are fully developed. Furthermore the methodology encompasses EU-based entities chiefly reporting under the Corporate Sustainability Reporting Directive (public expenditure is excluded). Finance and investment flows are analysed in relation to companies in transition and the European Sustainability Reporting Standards indicators will be used to identify such companies.

Financial sector flows will in a first instance focus on loans; bonds; equity; and investment funds. instruments claiming certain sustainability features will be measured, such as green bonds as well as funds disclosing their sustainable investments under the Sustainable Finance Disclosure Regulation. General-purpose financing (bonds and equity) will also be characterised based on activities of the underlying entity. Loans are analysed using aggregate data from banks, and for the transition of banks, the Green Asset Ratio and ESG Pillar 3 data will be used on inter alia financed emissions and targets. As regulatory-demanded reporting expands to encompass more entities and financial instruments, the Platform aims to refine its methodology over time. Progress in data collection and other areas will also facilitate extending the methodology, for example to cover some public sector funding and capital flows from beyond the EU.

Next steps

The Platform on Sustainable Finance will release a final report at the end of its mandate, which will include methodological refinements, an analysis of preliminary data and a proposal for operationalising the periodical monitoring.