Last Updated on Thursday, 18 May, 2023 at 11:21 am by Andre Camilleri
Rowen Bonello is Audit Manager at PKF Malta.
Even though ESG is considered as a relatively new subject, it is interesting to note that the term was first introduced by the United Nations in October 2005. It recently gained steam as a result of the COVID-19 pandemic, which has accelerated the social awakening and fast-tracked the trend for sustainable investing.
Earlier this month, the Association for Financial Markets in Europe (AFME) held its second annual sustainable finance conference in Amsterdam, which focused on enabling capital markets to finance the green transition. The conference was held over two days and gathered various market leaders, including major banks, capital markets experts, investors, analysts and policy makers.
The conference was kicked off by a speech from Martin Spolc, Head of Sustainable Finance Unit at the European Commission, which focused on shaping the European Sustainable Finance Policy. Mr Spolc delved into three key issues, the progress made on the EU regulatory framework, how the Commission is seeking to support the usability of the sustainable finance regulatory framework and how transition finance can be scaled up.
The EU Commission’s sustainability framework is based on three key pillars, Taxonomy, Disclosures and Instruments & Tools developed by the Commission. The Taxonomy Regulation is a classification framework to determine whether an economic activity is environmentally sustainable and requires the reporting on eligibility and alignment against six environmental objectives. The Sustainable Finance Disclosures Regulation requires managers to assess and disclose how sustainability risks are considered in their investment processes, and how they consider investment decisions that might result in negative effects on sustainability factors, known as Principal Adverse Impacts (PAIs). The Commission developed three tools to aid the market to better understand the EU Taxonomy; EU taxonomy compass, EU taxonomy calculator and FAQs repository. In June/July, the Commission is expected to issue guidelines on how the EU taxonomy shall be applied.
An important milestone in ESG reporting was the 2017 framework issued by the Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD framework assists public companies and other organisations to disclose climate-related risks and opportunities. During AFME’s conference, members from the Taskforce on Nature-related Financial Disclosures (TNFD) recognised the importance of the TCFD framework, however also noted that this framework focuses solely on disclosure of climate-related risks and opportunities. This is why TNFD was set-up and will be issuing its final recommendations in September 2023 which will encourage companies to produce integrated climate-nature disclosures, in addition to developing appropriate risk management processes.
At the start of day 2 of the conference, Jenny Bofinger-Schuster, Board Member of International Sustainability Standards Board (ISSB), delivered a speech on ISSB’s progress and the way forward. Ms Bofinger-Schuster assessed the prospects for international interoperability, while providing insight into the building block approach to establish a global baseline for sustainability reporting standards. In June 2023, the ISSB will be issuing two standards to address sustainability finance reporting; the IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures, both effective as from January 2024. During 2023, the ISSB aims to strengthen and enhance adoption and application of standards which includes, among others, capacity building, developing a digital taxonomy and interoperability.
Natasha Cazenave, an executive director of the European Securities and Markets Authority (ESMA) focused on the authority’s role in enabling the transition to a low carbon economy. More specifically, the authority’s priorities are to address greenwashing, promote transparency and support the functioning of the EU regulatory framework. Ms Cazenave highlighted progress made in corporate disclosures, guidance issued and consultations that ESMA was undertaking, such as guidelines on funds’ names using ESG or sustainability-related terms and SFDR, with the aim of providing clearer guidance and support financial institutions. She also highlighted the ESMAs’ work on greenwashing and the forthcoming progress report, in addition to pointing out that the framework remains complex and that investor protection needed to be enhanced to prevent greenwashing.
The consensus reached from the various panel members and speakers of the AFME’s 2nd sustainable conference was that reaching net-zero will not be a 1 or 2-year transformation, but there needs to be a parallel shift by all market participants in order to make the world greener and more sustainable. Panellists noted that SMEs are at a disadvantage when compared to mega companies, due to their size and lack of resources and therefore, it will be more difficult for them to invest and shift towards a net-zero business model. Thus, the market looks forward for a collaboration between market leaders and policy makers to aid in the transition to a more sustainable and greener economy. Such issues will be discussed at a PKF business breakfast planned for 27th June at the Portomaso Suite, Hilton Malta.
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