To determine what caused the bias and subsequently the path dependence and processes of layering and conversion, the findings of this research turn to stakeholder influence as an important proposition to analyze.
Institutional or Behavioral Lock-In?
Current literature suggests that two processes can give rise to path dependence: institutional lock-in and behavioral lock-in. Since none of the interviews with policymakers or other stakeholders specifically confirmed or indicated path dependence it is difficult to prove that behavioral lock-in mechanisms had influence. This is not to say that it did not occur, however, this research did not find evidence for it. However, there is evidence that is highly suggestive of institutional lock-in as a procedural explanation for path dependence. Understanding institutional lock-in requires an examination of how vested interests and power asymmetries are represented.
A moment that allowed for input and influence was the 2020 stakeholder consultation.
Almost exactly a year before the release of the Renewed Strategy, from 8 April until 15 July 2020, the EC launched a stakeholder consultation in which it aimed to “collect the views and opinions of interested parties to inform the development of the renewed strategy” (EU DG FISMA 2020a: 4).
In the stakeholder questionnaire, the first question asked about “the level of additional policy interventions required to match the increased ambition of the European Green Deal”
(EC DG FISMA 2020b: 16). Out of all 648 participating stakeholders, a majority (58%) held that they thought that “major additional policy actions are needed to accelerate the systematic sustainability transition of the EU financial sector” (ibid.). This was compared to the others (35%) who found that “incremental additional actions may be needed in targeted areas, but existing actions implemented under the Action Plan on Financing Sustainable Growth are largely sufficient” and a small group (2%) who argued that no further policy action is needed for the time being. The rest (5%) indicated that they did not have an opinion (ibid.).
Looking closely at the type of respondent that participated in the stakeholder consultation (see Figure 8), it is obvious that a majority came from the business sector. This was either a business association (23%), company/business organization in finance (14%) or
were also the most active in submitting position papers; 29% of business associations submitted a paper compared to the 16% of academic/research institutions papers which formed the second largest group (idem: 10-11).
Considering the high involvement of business stakeholders and the majority response, one would think that most business stakeholders voted for “major additional policy action is needed to accelerate the systematic sustainability transition of the EU financial sector” (idem:
16). However, that was not the case. See Figure 9 for an overview of responses. Of the total of 58% of respondents who voted for additional policy action, 79% were academic respondents, 71% were consumer organizations, 100% were environmental organizations, 86% were NGOs/Civil Society, 80% were trade unions and the rest were either ‘other’ stakeholders or individuals participating in a personal capacity (idem: 10). On the contrary, of the stakeholders who voted for more incremental additional policy actions, 71% came from business associations, 56% from financial companies/ business organizations, 54% from other companies/ business organizations, and 53% from public authorities (ibid.).
In the guiding communication of the Renewed Strategy, the EC policymakers repeatedly highlighted how important taking into account “public feedback” was and therefore it is clear that the public consultation results influenced the design of the Renewed Strategy (EC 2021c: 3, 5–6). This demonstrates that although the majority of respondents stated to want more policy action, the EC policymakers followed the input of the stakeholder group that considered the existing actions to be sufficient. That stakeholder group consisted of respondents largely from the business sector and, therefore, these findings suggest that business stakeholders had a significant influence on the policy design process of the Renewed Strategy, which is now the current Sustainable Finance policy mix
Figure 8: Stakeholder Consultation Number of Replies per Type of Respondent (n=648)
Figure 9: Stakeholder Consultation Responses to Question 1
Business Victory
Having established institutional lock-in induced path dependence in the policymaking process of the Renewed Strategy invites for further exploration of how those business interests and power dynamics are vested into the EC policymaking system and how they are reinforced by the relevant actors in the policymaking process of the Sustainable Finance Strategy policy mix.
In both interviews with the EU sustainable finance experts/civil society actors, they confirmed the dominant influence that the business sector has on EC policymakers. Frédéric Hache (2022) touched a lot upon the role of private sector influence. His general view on the sustainable finance policy mix is that he would “like to see it abandoned” (ibid.). Hence why he indicated to want “no further policy action is needed for the time being” in the 2020
stakeholder consultation (EC 2020: 16). He reasoned that the entire sustainable finance agenda is a failure because none of the sustainable finance initiatives are aligned with IPCC recommendations and therefore the strategy will never achieve the necessary transformation.
“What works is going to be an environmental regulation. All the rest is directing the conversation away and is bullshit. Everybody knows that. I mean, I speak to a guy in the Timmermans cabinet. He agrees. I know some of the heads of lobby firms and everybody agrees. I spoke to UK seniors and French leadership. Everybody knows it is bullshit. But so many people are creating this greenwashing because, I mean, it pays the bills.”
According to him, sustainable finance in the EU is a hoax and a means to direct the conversation away from what will be necessary to achieve real change. In his view, a significant part of the failed strategy can be attributed to the business sector because in the end “It’s a question of power dynamics and vested interests” and the business lobby is:
“Successful in constantly decreasing the conversation away from the need to curb our emissions and the need to curb our distortion of the message. ‘Net-zero’ is a victory of lobbying because net-zero is obfuscating our failure to curb our emissions.”
Thus, according to Frédéric Hache (2022), the enormously coordinated lobbying had a massive influence on the sustainable finance agenda and the policymakers who designed it. This is democratically problematic, but the EU’s own doing because “historically the EU allowed a great access to lobbyists.” One of the examples of the business stakeholder influence is the rise of so-called task forces such as the “Taskforce on Nature Markets” which according to Frédéric Hache (2022) is a “totally underreported story of enormous coordinated private lobby influence on this issue” and aims to redirect policies away and towards creating new markets. He stated that policymakers are very aware that this will not achieve anything, yet these people also have political and financial interests that uphold these false narratives:
“it’s about the battle for the public opinion and its power dynamics. But I mean, you know, I've been in Brussels for 10 years. I've met these guys forever. They just care about the next promotion and this will not change their policies.”
Failure to Repurpose
EU sustainable finance expert Victor van Hoorn also confirmed that business lobbying has most definitely influenced the EU sustainable finance strategy. He stated (2022):
“Yes, they most definitely have, but you have to be realistic, they will always have influence in one way or the other. The reality is that large business lobbies represent many jobs. That is something politicians, the Commission will forever be sensitive for.”
Victor van Hoorn did nuance that the interest of business stakeholders in this agenda specifically surged following the conversion of the Action Plan instruments to the new goals of the EU Green Deal and the COVID-19 recovery plans:
“that is the reason that all the lobby’s woke up and said ‘yes but wait if I want to receive money in the next two years from the EU to help my industry, my sector, I now suddenly need to comply with all these standards of the Taxonomy. That means it is very important to know what is in the taxonomy’. This is when everyone woke up. Because the funny thing is that before that period, most business lobbies couldn’t care less. The taxonomy was not one of the top 5 priorities of most sectors. They had no idea what it did. And I know that because as a consultant I would visit these companies and say to them: ‘listen you have to do this because it is important. You have to wake up. Yes, but nobody had an interest. Until this happened. So yes, the result is: the lobbies have become very active and watered down a lot of aspects of the Taxonomy.”
This insight confirms that the introduction of the EU Green Deal was a critical juncture because while the EC converted the agenda to fit the larger goals of the EU Green Deal, business lobbies saw that as a window of opportunity to capture the agenda (or specific agenda items such as the Taxonomy). Therefore, the incongruence of the policy mix is to a large extent a “blunder by the EU Commission and some people in European Parliament.” To explain this, Victor van Hoorn (2022) stated that it is important to go back to the context of the beginning of the sustainable finance strategy:
“It all started in 2016 as a result of the Paris Accords – you are familiar with that. Eh, the only thing that is good to always, and I tell all of our members this as well, this started as a sort of green niche of the Commission. It started under the Commission-Juncker and it was sort of the only green flagship of the Commission. Mostly because France was a huge proponent of this, especially when president Macron was elected and he became a handy ally for the EU Commission. It fitted his [Macron’s] political agenda because sustainable finance ticked all the boxes.”
Therefore, sustainable finance started with:
“Defining what is sustainable, what is green, or what are the sustainable actions that you can expect when, for example, you want to take climate into account. … it was a deliberate political choice to do it this way and say: ‘we are going to be positive; we are going to define what is green, and we are most definitely not going to do anything else that is bad because then the box of Pandora will open and it will become impossible to find an Accord to that.”
However, what happened was:
“and so they did this. However, suddenly around Covid and the European recovery funds [when the strategy was repurposed], the question arises whether the EU Taxonomy is a useful tool in that recovery fund and that is where opinions changed completely.
Suddenly the biggest accusation towards sustainable finance is: ‘yes but hold up, this framework does not define at all how the transition should be accomplished.’ I think that this is unfair criticism because it is clear why that happened but perhaps some actors like the Commission and the Platform did not communicate this well.”
This serves as an explanation as to why the initial Action Plan focused mostly on increasing transparency and disclosure, namely because it was not meant to be designed to fit the larger goals. All the criticism that the EC is receiving regarding instruments of the EU Sustainable Finance Strategy is therefore the consequence of EC policymakers not communicating well about the original intent of the Action Plan and making a bad strategic choice to repurpose this strategy to fit larger goals while it was not designed to do so. By doing this, they generated the attention of the European business lobby which then had strong effects on the eventual outcome of the Renewed Strategy.
Gathered from a conversation with EC policymaker Pauline Dejmek-Hack and as she has publicly stated, the EU sustainable finance agenda indeed started as a niche agenda, but it quickly evolved into a mainstream concept. Something that was perhaps also not foreseen by the EU:
it’s very interesting to see how the entire global debate has shifted on this matter. I believe we were thinking about this in the EU earlier than many others were: We started the work on the Taxonomy Regulation a few years back and we set up the International Platform for Sustainable Finance in 2019 – in a world in which there was much less focus on these issues than today. Notably as regards the USA, which was in a very different place back then compared to where they are today on this matter. So it’s interesting to see how this has shifted from being a little bit of a niche debate to becoming mainstream.
Business perspective
The perspective from the stakeholders with regards to their engagement offers a perspective that partially confirms and rejects the view of the sustainable finance experts.
In a conversation with Carolina Vigo (2022) from Europe’s largest non-financial business lobby, BusinessEurope, she confirmed that BusinessEurope is heavily involved in the EU Sustainable Finance agenda. She confirmed that “we as everybody have bilaterals” with EU policymakers. Zoé Van Hamme (2022) also confirmed that the financial sector industry group has “official meetings with EU officials (EP, EC, DG,…) Where we can share our views
and/or position papers.” Besides these meetings, the financial sector industry group also engages with EC policymakers under the auspices of a larger EU cupola organization. This organization also “sometimes works together with other European business associations.” In response to the question of whether these consultations are useful, Zoé Van Hamme (2022) stated that this very much depends on the topic but that it is important to continue to “having the possibility to speak” as this is part of the “EU democratic process.”
The two business sector stakeholder groups actively seek engagement with policymakers. However, Carolina Vigo (2022) also explained how the EC actively recruited them to engage. BusinessEurope has been very involved in the policymaking process through their engagement as part of the EC appointed expert group the Platform on Sustainable Finance:
“Two summers ago, the Commission launched this public call, not public consultation but, a public call where stakeholders could apply. And so in this setting, we applied and we obtained the seats.”
This confirms that the group has been actively involved in discussing the agenda even before the launch of the Renewed Strategy.7 Carolina Vigo (2022) stated that this was a great opportunity for BusinessEurope to “improve our influence and our knowledge.” She added that it was important for BusinessEurope to be more engaged and gain a seat at the table because:
“Representation was very much on the financial side, which was there for some choice from the Commission. And so, it was important to have more non-financial sector representatives.”
However, she did state that this made sense considering that the “EU Sustainable Finance agenda is led by DG FISMA and their main counterpart, let's say is the financial sector. So that also explains.” In response to the question of why she thinks BusinessEurope was granted the seats as opposed to another group, she responded: “We are also the biggest business organization in Brussels. So yeah, I think that.” This confirms Victor van Hoorn’s (2022) statement that the EC is sensitive to large business lobbies as they represent a significant group of jobs.
An interesting additional insight is that Carolina Vigo (2022) added that being a member of the Platform on Sustainable Finance has meant that the quality of their engagement efforts increased because they had to participate in many more meetings and events:
“We have always been active. But I think certainly, that [engagement in the Platform]
influenced more than our efforts, let's say that our efforts have changed due to our
7 The Platform on Sustainable Finance is the EU Commission appointed expert group that was established as part of the EU Taxonomy. The call for applicants for member of the group was launched on 18 June 2020 and
engagement, now in the platform, which is funny, because by nature, you're asked to participate in many more meetings than before … we alsohave a better understanding of what happens on the ground. And that's why I think, at least, I hope, we see our inputs havealso been improved in terms of quality,”
With regards to the timing of their engagement, Carolina Vigo (2022) stated that BusinessEurope has been involved with the Sustainable Finance agenda since 2018. However, in line with Victor van Hoorn’s (2022) statement that the lobbying interest grew significantly following the announcement that the Action Plan would be repurposed to achieve the goals of the EU Green Deal and the COVID-19 recovery plans, Carolina Vigo (2022) stated:
“But now, indeed, due to the fire politicization of the taxonomy, the media awareness, also now the financial sector, we've seen [rising interest in the topic] it in our membership, the interest, but especially the comprehension has changed dramatically, in just a few years.”
Additionally, Zoé van Hamme (2022) from the financial sector industry group stated that their respective industry was “already working on sustainable projects” even before when the HLEG was established in 2016. The respondent additionally held that the industry group has been following the green transition “even before 2018 and the launch of the first sustainable finance action plan and the green deal.” However, the EU Transparency Register8 does not have records of this industry interest group actively engaging with policymakers on this issue.
This means that the financial sector industry group has not had any registered meetings with EC officials at all and the EU cupola organization’s first sustainable finance meeting with EC officials was on 10/10/2017. This suggests that the financial sector industry group was working on the issue, but predominantly on a national level. Paulina Dejmek-Hack also confirmed that the Member States individually work on their national sustainable finance strategies (Afore Consulting 2022: 6:15).
In addition, records from the Transparency Register (Transparency Register n.d.) demonstrate that following the EU Green Deal, the respective financial industry group did have more meetings on the subject ‘ of sustainable finance.’ From 2019 to 2022, there were three meetings with EU officials where sustainable finance was the agenda topic, whereas from 2014 to 2019 this only occurred twice (ibid.). This suggests that within a shorter period, relatively more meetings covering sustainable finance occurred.
8“The Transparency Register is a tool to allow European citizens to see what interests are being represented at Union level and on whose behalf, as well as the financial and human resources dedicated to these activities.”
See more: https://ec.europa.eu/transparencyregister/public/homePage.do
With the latter in mind, it is also important to note that Frédéric Hache (2022) stated that “the lobbying is more than the consultations. You have to go for a beer after work. Learn to play tennis with the MEP on weekends, et cetera.” However, this research did not find proof or confirmation of such unofficial meetings concerning the Zoé van Hamme’s (2022) financial sector industry group and therefore it cannot be considered as part of the empirical results of this research. Nevertheless, this thesis is not oblivious to the realities of such lobby practices.
Discussion
As implied by EU sustainable finance experts and confirmed by representatives from the financial and non-financial business sectors, the policymaking process of the EU Sustainable Finance policy mix has been heavily subjected to influence from the business sector. These findings are in line with existing literature on the significant role of business stakeholder lobbying in the EU and they confirm that business lobby tends to defend the status quo whereas civil society seeks to change.
Noteworthily is that especially following the EU’s decision to convert the Action Plan instruments to achieve the new goals of the EU Green Deal and COVID-19 recovery plans, the business sector became very interested in the contents of the policy mix and started to increase their engagement efforts. The EU Green Deal was therefore a critical juncture that opened space for increased engagement efforts of the business lobby.
Further, an interesting nuance to the existing literature on interest group influence is that contrary to the assumption that stakeholder influence is a one-way stream, EC policymakers themselves also intentionally and unintentionally opened the space for stakeholders to exercise influence. Intentional was the invite for the business sector to participate and engage through stakeholder consultation and the creation of expert groups.
Unintentional was that the repurposing of the Action Plan suddenly increased the stakes of the business sector in the outcome of the policy mix and therefore woke up the business lobbies to exert influence and resist change.
Therefore, while positive perceptual bias is generally considered a factor that is inherited from within the EU due to policymakers’ positive experiences with implementing similar policies in the past, these findings demonstrate that the positive perceptual bias of EC policymakers, in this case, may have been heavily influenced by the business sector’s lobby efforts. The answer to the question How does stakeholder influence shape patterns of change?
is therefore that stakeholder influence can reinforce policymakers’ positive perceptual biases
cause institutional lock-in path dependence which in turn is closely related to processes of layering and conversion.
Further, none of the empirical findings of this research find evidence for proposition 3 which holds that the incongruent design of the policy mix was a strategic choice by EC policymakers to get less ambitious actors on board with sustainability regulations.