Since the introduction of its Sustainable Finance Agenda, the European Commission has made considerable progress to ensure that the objective of net-zero carbon emissions and the creation of a sustainable financial system is reached by 2050. The Commission’s action plan has registered substantial progress, with its three legislative initiatives being currently implemented.
Taxonomy Regulation (effective 12 July 2020): A unified classification system (taxonomy) has been implemented to unequivocally establish those economic activities that can be classified as environmentally sustainable. The taxonomy regulation encompasses three elements of sustainability: governance, social and environmental. However, the attainment of all three aspects is not mandatory. As a consequence, the single application of a socially driven policy by a company, for instance, grants it the status of being sustainable.
Disclosure Regulation (effective 10 March 2021): The current regulation entered into force in December 2019. Its purpose is to harmonise existing provisions on disclosures to investors in relation to sustainability-related disclosures with the introduction of mandatory requirements for financial market participants and financial advisers concerning financial products. The Regulation requires disclosure as to how Environmental, Social and Governance (ESG) factors are integrated in the risk processes.
Benchmark Regulation (effective 30 April 2020): the EU Benchmark Regulation (EU BMR) requires that benchmark administrators comply with new climate benchmarks by 30 April 2020. This regulation aims at ensuring the reliability of parameters and the avoidance of conflicts of interest in benchmark-setting processes. Benchmark administrators can refer to the “Climate Transition Benchmarks” and the “Paris-aligned Benchmark” documents when designing their methodologies for benchmark-setting processes.
The European Commission is planning to publish an updated sustainable finance action plan for Q3 2020, consultations for which started in April 2020.
Sustainable finance in Malta and the regulator’s role
The Malta Financial Services Authority (MFSA) has been involved in the new European action plan's consultations, submitting its feedback and recommendations. The MFSA will be increasing awareness among the license holders (primarily via separate circulars) to bring all industry players up to speed with the new requirements and avoid a fragmented approach. Notably, the MFSA is encouraging licence holders to acquaint themselves with the Disclosure Regulation as industry players will be expected to update their internal policies accordingly.
This article forms part of a series of features on sustainable finance for the new Sustainability section which will be launched soon.