PKF delegates visited Amsterdam this month on a conference which brought 300 delegates to discuss and debate key topics and issues that are shaping sustainable finance markets and policy.
The agenda included key issues facing market participants including capital market developments, how regulatory frameworks are functioning, and what is needed to support the real economy transition for sustainable finance.
The EU’s recent institutional changes on sustainable finance and transitional capital reflects a comprehensive and ambitious approach to fostering a sustainable economy. By implementing these regulations and initiatives, the EU aims to mobilize private capital towards sustainable investments, enhance transparency and accountability, and ensure that financial markets contribute to the transition to a low-carbon, resilient, and resource-efficient economy.
The European Green Deal is the EU’s overarching strategy to become climate-neutral by 2050. It encompasses a wide range of policies and initiatives, including:
- Climate Law: Enshrining the 2050 climate-neutrality target into law.
- Circular Economy Action Plan: Promoting sustainable production and consumption.
- Biodiversity Strategy: Protecting and restoring biodiversity and ecosystems.
The RRF, a key component of NextGenerationEU, aims to support Green Transition by allocating funds to projects that contribute to the EU’s climate and environmental goals.
The EU is exploring the introduction of a “Green Supporting Factor” in banking regulations, which would lower capital requirements for green investments, incentivizing banks to finance sustainable projects. Malta can participate in this ambitious project by supporting sustainable and innovative projects. Back to the conference and top on the agenda were changes to SFDR, and how CSRD will shape the data landscape and integration of transition plans into finance and investment decision-making. For PKF delegates, this was a unique opportunity to learn more on EU taxonomy alignment, classifying products under SFDR and utilising comparable disclosures. Speakers included heads of the units from the European Commission, FCA, AMF, HM Treasury, German Federal Ministry of Finance, EFRAG, AFM, IMF, World Bank, IOSCO, EBA, BAFIN and the Bank of England.
The regulatory landscape for sustainable finance is complex and is often fragmented across different jurisdictions. Financial institutions must now navigate varying requirements and standards, which can be resource-intensive. These are continually evolving.
Will Malta‘s institutions achieve stringent disclosure requirements, such as those mandated by the EU Taxonomy and the Sustainable Finance Disclosure Regulation (SFDR). Only by harvesting reliable and consistent data on environmental, social and governance (ESG) factors can Malta meet its international obligations and attract more capital investment. Ideally, financial and banking regulators need to educate licensed entities on use of standardized metrics and methodologies for measuring and reporting ESG performance.
If this is lacking or inconsistent, it can lead to confusion and makes it hard for international investors to compare different investments. Last year, PKF organized jointly with the Times of Malta three ESG themed conferences and invited ministers directly involved to explain their roadmap on the subject. Malta cannot rest on its laurels. It must continue (without partisan leanings) integrating ESG considerations into existing risk management, investment decision-making, and reporting systems. Locally, one appreciates that there is probably a lack of expertise and skills related to sustainable finance within certain financial institutions. PKF Academy has designed a number of specialized courses how to implement the necessary technology and infrastructure rules to support sustainable finance practices, such as data analytics and reporting tools.
The ESAs, including the European Securities and Markets Authority (ESMA), the European Banking Authority (EBA), and the European Insurance and Occupational Pensions Authority (EIOPA), have been given enhanced roles in overseeing the implementation of sustainable finance regulations. A popular topic is green bonds, to which so far, Malta has only registered one bond. More needs to be done by regulators, banks and the Stock Exchange particularly to finance offshore renewable energy projects.
European Green Bond Standard (EUGBS) is a voluntary standard designed to enhance the credibility and effectiveness of green bonds. It aims to ensure that the proceeds from green bonds are used for genuinely sustainable projects. Such proceeds must be exclusively used for projects that align with the EU Taxonomy. Essentially, these include renewable energy, energy efficiency, sustainable water management, pollution prevention, and more. Finally, delegates were informed about how the EU has introduced specific climate benchmarks to guide investors towards low-carbon and climate-resilient investments.
These benchmarks are designed to align with the Paris Agreement’s climate goals and provide a reference for measuring the performance of investment portfolios.
In conclusion, the two-day conference was a harbinger of interesting sustainability concepts introduced by the EU. An interesting debate arose about the availability of ESG data as a public utility. Ideally, this concept involves balancing the benefits of transparency and accessibility with the challenges of cost, quality, and intellectual property.
It goes without saying that to address social aspects through ESG methodologies, this requires a comprehensive approach that includes standardization, data collection, stakeholder engagement, integration into business strategy, and transparent reporting. In conclusion, by adopting best practices and leveraging global standards, financial institutions can effectively tackle social aspects within their ESG frameworks, contributing to a more sustainable and equitable economy.