ESG takes root in Malta

ESG is a framework that helps stakeholders understand how an organisation manages risks and opportunities around sustainability issues.

It has evolved from other historical movements that focused on health and safety issues, pollution reduction and corporate philanthropy. This has changed how capital allocation decisions are made by multi-nationals and state regulators in the world. Social issues are becoming a higher priority on the business agenda.

This is, in part, due to increasing evidence of companies facing operational, reputation and financial losses as a result of failing to address the externalisation of costs and risks to workers, communities and consumers. Moreover, there is growing recognition of inequality as a systemic risk to the resilience of business operations, value chains and business models.

Key stakeholders in Malta including regulators, investors, banks, customers and civil society are demanding transparency around how corporate strategy and practices are impacting people and profit.

The Sustainable Finance Disclosure Regulation (SFDR), a European regulation that applies to financial market participants, came into effect in March 2021 and impacts regulated financial intermediaries and their products. The second part of the SFDR, the Regulatory Technical Standards (RTS) came into force on 1 January 2023. While there is no single national law which is ESG specific, a variety of rules and regulations may be considered to align with principles enshrined in the environmental, social and governance aspects of ESG, including:

• the Sustainable Development Act (Cap 521 of the Laws of Malta);
• the Environmental Protection Act (Cap 549 of the Laws of Malta);
• the Renewable Sources Regulation (SL 545.11);
• the Climate Action Act (Cap 543 of the Laws of Malta);
• the Equality for Men and Women Act (Cap 456 of the Laws of Malta);
• the Code of Principles of Good Corporate Governance (Appendix 5.1 to the Capital Markets Rules, issued by the Malta Financial Services Authority (MFSA); the Corporate Governance Code, also issued by the MFSA and applicable to entities regulated by the MFSA Corporate Governance Code) and the Voluntary ESG Code of Good Practice for the Remote Gaming Sector in Malta, issued by the Malta Gaming Authority.

In Malta, the integration of ESG (Environmental, Social and Governance) norms is becoming increasingly robust, influenced heavily by EU regulations and local initiatives. The EU’s regulatory framework, including the Non-Financial Reporting Directive (NFRD) and its successor, the Corporate Sustainability Reporting Directive (CSRD), plays a crucial role. These directives require large companies and those listed on regulated markets to disclose non-financial and sustainability information, enhancing transparency and accountability in environmental and social matters.

Maltese entities, especially in the financial sector, are also governed by the Sustainable Finance Disclosure Regulation (SFDR), which mandates the disclosure of sustainability risks and the impact of investment decisions on ESG factors. This is part of a broader EU strategy to channel private investment into sustainable development, supporting the European Green Deal and the transition to a carbon-neutral economy.

On a national level, Malta is seeing voluntary adoption of ESG principles among companies not strictly bound by these regulations. Initiatives like the ESG Alliance, headed by Perit David Xuereb (appointed by the government), highlights a private sector commitment to sustainability, specifically focusing on decarbonisation and other ESG-related projects.

The MFSA actively participates in European and international forums to align with and contribute to global ESG strategies, emphasising the importance of sustainable finance in regulatory and business practices across the country.

These developments reflect a growing alignment with international ESG standards and show Malta’s proactive approach in integrating these practices into its financial and corporate sectors, promoting a sustainable economic future in Malta.

The EU’s regulatory framework, including the Non-Financial Reporting Directive (NFRD) and its successor, the Corporate Sustainability Reporting Directive (CSRD), plays a crucial role. These directives require large companies and those listed on regulated markets to disclose non-financial and sustainability information, enhancing transparency and accountability in environmental and social matters. Maltese entities, especially in the financial sector, are as stated earlier, governed by the Sustainable Finance Disclosure Regulation (SFDR), which mandates the disclosure of sustainability risks and the impact of investment decisions on ESG factors.

This is part of a broader EU strategy to channel private investment into sustainable development, supporting the European Green Deal and the transition to a carbon-neutral economy. On a national level, Malta is seeing voluntary adoption of ESG principles among companies not strictly bound by these regulations.

On the other hand, the MFSA actively participates in European and international forums to align with and contribute to global ESG strategies, emphasising the importance of sustainable finance in regulatory and business practices across the country. These developments reflect a growing alignment with international ESG standards and show Malta’s proactive approach in integrating these practices into its financial and corporate sectors, promoting a sustainable economic future.