Sustainable finance, reflexive law, and the epistemic infrastructure of financial markets

Abstract In recent years, the European Union (EU) has introduced several policy measures to better align financial markets with sustainability goals. So far, these policies have mainly aimed to improve how information on the sustainability impacts of investments is collected and transmitted. Policymakers hope that adjustments to the epistemic infrastructure of financial markets will lead to a shift in investments that translates into transformational change in the real economy. The EU’s sustainable finance policies often follow a reflexive law approach and confine themselves to setting procedural and organisational norms. This article analyses the potential and limitations of this approach and argues that sustainable finance policies must be sufficiently detailed and binding to avoid the risk, associated with reflexive law policies, of granting too much discretion to agents with vested interests detrimental to the governance aims. However, detailed and binding policies do not fully realise the advantages in dealing with highly complex and dynamic situations that are often ascribed to reflexive law policies. While sustainable finance policies that address the epistemic infrastructure of financial markets are for various reasons still important, their potential and advantages compared to other governance approaches should not be exaggerated.