Alexandre Zaporoszenko Cavazzani*

Bruno Teixeira Peixoto**


The European Green Deal and ESG practices. Green financing contracts.

That is right; EU is now becoming a green region, where sustainable development is a key element if one wills to bring forth his or her activities in the economic block. Environmental, Social, and Governance practices are strongly demanded from the private sector, following the new policy of the European Green Deal. 

The kickoff of the Deal took place on December 2019, when the European Commission approved the so-called European Green Deal, summoning society to follow the new guidelines for sustainable development, bearing in mind human and the whole Planet well-being. The intention is to build a climate neutral region, free of carbon (decarbonization policy), rescuing the environment while underpinning the economy.

In order to accomplish the new task, the Deal takes its ground on four essential pillars, which include 1. Making Europe climate neutral from 2050; 2. Protecting all kinds of life, while reducing pollution; 3. Fostering clean technologies and products; and 4. Guaranteeing a fair and inclusive green transition for all.[1]

Surely, the policies are directed overall to the private sector. This sector is the most important in the economy, and is a relevant object of the green goals.

The European Green Deal encompasses transferring funds to this sector. In this sense, financing activities are now due to observe sustainability, environmentally friendly products and services. Hence, companies, institutions, banks, and enterprises must comply with green clauses provided in the financing contracts.

As we observe, the Plan is to create a framework for a green transition, facilitating and stimulating investments, in order to achieve a carbon free region by 2050. The EU is ready to provide 1 trillion euros for financing programs, 279 billions of which will go to the market through private and public funds,[2] with an eye on supporting the green transition, especially of those countries hinging the most on fossil fuels. Thus, the core of the Deal is to turn financing activities green.

A way for all this to happen is celebrating green financing contracts. When receiving support from the EU through investments, private sector entities will be evaluated based on a system of methods to measure their sustainability. That is a process called ‘EU taxonomy’, which will verify and classify economic activities pursuant to sustainable standards.[3]

The core of this program will be the European Investment Bank, the world’s biggest multilateral financial institution and one of the largest providers of climate finance.[4] Its funds will be fed by the EU and its budget. Hence, banks will have a key role in providing financial support, while conditioning it to sustainable activities.

In their contracts, parties will provide green clauses. Those type of clauses are somewhat new to the EU contract law. Ellen Eftestol mentions that this field of law does not foresee, at least explicitly, sustainable obligations. According to her, contracts, in general, does not entail environmental duties.[5] Mitkidis is another author that suggests environmental clauses as a means to achieve ESG objectives in contracts, binding parties to environmental obligations.[6]

This is new and conspicuously interesting. For those who are infatuated with law and contracts, it is a new approach. The essence is not properly the main object of the contract, but rather the way the contract and duties are performed. They must follow sustainable guidelines.

With regard specifically to ESG practices, Europe has been assimilating market manifestations, especially since the letter[7] from Larry Fink, CEO of Black Rock, the largest investment fund in the world, which highlighted the importance of investments that measure ESG impacts (environmental, social and governance).

The movement for good ESG practices has positions highlighted by the last World Economic Forum, in Davos, Switzerland, for which countless financial institutions and companies in the world are aware of the importance of ESG not only in the financial market but also reflected in public policies[8].

In this sense, the European Union, as seen, is attentive to the ESG wave of management and governance standards, considering that sustainable investments and ESG practices are some of the fundamental instruments of the European Green Deal, in order to achieve concrete sustainable development, while mitigating climate change.

In a nutshell, the point is that European Union is now turning green. Banks, investors, and the private sector are now due to observe the European Green Deal and its policies to build up a massive green economy. The private sector is now stimulated to regard ESG practices, and greening contracts are one of many ways to achieve sustainability in the region. This naturally will not be restricted to the EU, it will spread all over the world, inasmuch as many key EU regulations rebound on foreign agents. But this is to be seen in the upcoming years.


[1] European Commission. 2019. What is the European Green Deal. https://ec.europa.eu/commission/presscorner/api/files/attachment/859152/What_is_the_European_Green_Deal_en.pdf.pdf [Accessed on: 25.05.2021]

[2] Money.It. 2020. Cos’è il Green New Deal e cosa prevede? Il significato. https://www.money.it/Green-New-Deal-cos-e-significato-cosa-prevede. [Accessed on: 14.02.2021].

[3] European Commission. 2020. “Communication from the Commission to the Europeal Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions”. Sustainable Europe Investment Plan. https://eur-lex.europa.eu/legal-content/en/txt/?uri=celex%3a52020dc0021. [Accessed on: 14.02.2021].

[4] Idem

[5] Eftestøl-Wilhelmsson, Ellen. 2019. European Sustainable Carriage of Goods: The Role of Contract Law. Routledge, 2015.MASON, J.W., The macroeconomic case for a green new deal. In: Decarbonizing The US Economy. Roosevelt Institute. https://rooseveltinstitute.org/wp-content/uploads/2020/07/RI_Macroeconomic-Case-for-the-GND_brief-201906.pdf [Accessed on: 27.02.2021].

[6] Mitkidis, Katerina Peterkova. “Sustainability Clauses in International Supply Chain Contracts: Regulation, Enforceability and Effects of Ethical Requirements”. Nordic Journal of Commercial Law. N. 1, 2014.

[7] https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter

[8] https://widgets.weforum.org/esgecosystemmap/index.html#/

“This study was financed in part by the Coordenação de Aperfeiçoamento de Pessoal de Nível Superior – Brasil (CAPES) – Finance Code 001”.


*Alexandre Zaporoszenko Cavazzani

International Relations Analyst, Lawyer and Master Degree Student in International Law at UFSC (Federal University of Santa Catarina). CAPES Researcher.

**Bruno Teixeira Peixoto

Lawyer. Specialist in Environmental and Urban Law. Master's student in International Law and Sustainability, at UFSC (Federal University of Santa Catarina). Collaborator with the UN Harmony With Nature Knowledge Network Experts.