Investment Services and the Risks of Sustainable Finance

In order to foster sustainable growth, the European Union asked for the contribution of capital markets by integrating financial regulation with new rules on sustainability. The paper explores the main impacts of the new investment services regime, highlighting that the policy choice favoring sustainable investments reduces the traditional neutrality of this regime. However, sustainable financial instruments present specific risks, so the policy choice favoring ESG investments unintendedly exposes investors to higher risks. Because the protection granted by the current regulatory framework proves insufficient, the paper identifies some possible solutions for considering the risks associated with sustainable financial instruments and ensuring adequate investor protection.