The European Commission is currently engaged in a number of initiatives to implement its Action Plan on sustainable finance.
Sustainable finance differs from traditional finance. While traditional finance focuses on financial returns and considers this sector distinct from society and the environment, sustainable finance is concerned with the combined returns from the financial, social and environment spheres. Simply put, sustainable finance embraces financial, social and environmental gains as part of the same returns framework. Here, green finance becomes a strong component which supports economic growth, and there is an awareness of the risks which can adversely affect the financial system and the need for corporate actors to use governance to counter such risks.
Putting sustainable finance into practice
The Commission’s Action Plan aims to improve the finance sector’s contribution to sustainable and inclusive growth and to position environment, society and governance (ESG) as prime concerns when it comes to investment decisions.
In May 2018, the Commission adopted a package of measures, notably:
- Taxonomy Regulation: to establish a framework for the creation of a unified classification system for environmentally-sustainable economic activities;
- Disclosures Regulation: to introduce obligations for investors and asset managers to disclose how they integrate ESG into their risk process;
- Amended Benchmark Regulation: to create new low-carbon and positive carbon impact benchmarks.
Regulations for European Supervisory Authorities (ESAs) have also been revised to add sustainable finance responsibilities and tasks, namely an obligation for ESAs to take ESG factors into account across their activities, including supervision; and to monitor and assess ESG-related market developments and risks.
The MFSA has duly recognised that the European Commission has placed sustainable finance among its main priorities. In this regard, it is looking into the major regulatory changes at EU level in the area, and has made sustainable finance a key priority of its Strategic Plan. However, the MFSA acknowledges that regulatory change must take place in tandem with a culture change and, to this end, it is committed to an open dialogue with policymakers, the industry and financial services users to make the transition to sustainable finance a reality.