Abstract: In this study, we give a review of challenges posed by the energy transition and climate change to both energy- and financial markets. Energy is sustainable if it meets the needs of the present without compromising the ability of future generations to meet their own needs. The implementation of sustainable energy transition trends is a laborious process, that can cause significant disequilibria in the energy and financial markets. We focus on the growing fear of gas shortage in Europe, which increased during the latest developments of the Ukraine crisis, having severe consequences on the commodity markets and security of supply.
Sustainability became part of mainstream investment: According to data provider Morningstar, 2.24 bio-USD were invested worldwide in financial products observing ESG criteria in June 2021, an increase of 12% compared to the previous quarter. However, asset managers’ claims to invest their assets sustainably meet increasing skepticism. Greenwashing, the claim to take a sustainable approach without doing it, is widespread. One of the main challenges for investors is the lack of a clear definition and eligibility criteria for projects that classify as green. The Sustainable Finance Disclosure Regulation (SFDR) in 2021 proposes a classification of the investment funds into: Funds with ecological or environmental concerns (Article 8); Funds that pursue a sustainability goal (Article 9); and other financial products (Article 6) that are not described as sustainable. However, we found that investments of SFDR-classified funds are often not different from those of conventional financial products. They also invest in fossil fuels. The EU Taxonomy is a new classification system of sustainable economic activities based on performance criteria to: 1) Help corporates transition towards greener investments; 2) Prevent greenwashing; 3) Channel investments to achieve 6 environmental objectives as defined by the EU. We shed light on difficulties to implement the EU taxonomy steps, given the heterogeneity of ESG variables reported by companies even in the same field of activity, which makes a direct comparison of green activities hard to rank and compare. We will give a review of literature focusing on implications of ESG reporting on the firm`s performance, mergers and acquisitions, or portfolio optimization techniques.