Sustainable Finance
On 13 June 2023 the European Commission (the ‘EC’) put forward a new package of measures to build on, and strengthen, the foundations of the EU sustainable finance framework. While many companies and investors have already embarked on their sustainability journey, however, they are also facing challenges in this transition, especially when it comes to complying with new disclosure and reporting requirements. The aim of this package, therefore, is to ensure that the EU sustainable finance framework continues to support companies and the financial sector in general, while encouraging the private funding of transition projects and technologies.
The package includes additional activities to the EU Taxonomy and proposes new rules for Environmental, Social and Governance (ESG) rating providers which will increase transparency on the market for sustainable investments. The EC also published an EU Taxonomy User Guide thereby providing guidance on the Taxonomy to non-experts and a recommendation on facilitating finance for the transition to a sustainable economy.
On 1 June 2023, the EBA published the progress report on greenwashing in the financial sector. Greenwashing is understood as a practice whereby sustainability-related statements, declarations, actions, or communications do not clearly and fairly reflect the underlying sustainability profile of an entity, a financial product, or financial services. This practice may be misleading to consumers, investors, or other market participants. For further information check out the press release on the EBA website.
Furthermore, the European Supervisory Authorities (the ‘ESAs’) jointly submitted to the EC the draft RTS on Simple, Transparent and Standardised (STS) securitisations-related sustainability disclosures. These technical standards aim to help market participants make informed decisions about the sustainability impact of their investments by for example, specifying the ESG disclosures which would apply to STS securitisations where the underlying exposures are residential loans, auto loans and leases.
Diversity
The EBA published the report on the benchmarking of diversity practices and the gender pay gap. Credit institutions shall be reminded that the CRD requires them to consider diversity within the members of the Board of Directors when recruiting new members and to implement an effective Diversity Policy. In addition, ‘Significant Institutions’ are required under paragraph 86(a) of the Banking Rule BR/24 to set a target for the representation of the underrepresented gender in the Board of Directors and to take the necessary requisite measures in this respect. Diversity is important to avoid ‘groupthink’ scenarios and to ensure that different perspectives are brought to various challenging discussions.
Considering the local context, data gathered for 2021 clearly indicates that further improvement in gender balance and diversity within the Boards of credit institutions is required. Institutions are expected to give this issue its due importance in their strategic planning and actions. For example, credit institutions can focus on creating internal career development programmes to help create adequate future leaders and enhance the recruitment processes at all levels of the organisation.
