ESG in Malta: trends and prospects

By Jannico Cabanero

Cabanero is Junior Economist at PKF Malta

In June of this year, the European Commission has reached a provisional agreement on the Corporate Sustainability Reporting Directive (CSRD) proposal which aims to improve the reporting and disclosures of companies relating to non-financial activities, particularly those that are related to environmental, social, and governance (ESG) issues. The proposal features more detailed reporting requirements that are aligned with the mandatory EU sustainability reporting standard and requires an assurance of such reported information. This shall apply to all large enterprises and all listed companies on regulated markets (excluding microenterprises) with reporting period to commence in 2024 for large companies and 2026 for listed SMEs and small institutions.

Understanding the current regulatory environment is important in making any major business decision. In the case of ESG, there are numerous policy changes and regulations were introduced at both EU and national levels. In the EU, for example, the European Green Deal was introduced as the flagship agenda to achieve zero net emissions by 2050 alongside other policies related to the promotion of a circular economy, protection of biodiversity, and funding the green transition. These new policies will introduce opportunities for businesses to adopt more sustainable practices and revisit their current processes to align with ESG principles.

Here in Malta, several initiatives were also introduced in line with the new sustainability reporting policy. The Ministry of Energy, Enterprise, and Sustainable Development together with Malta Enterprise launched Malta’s ESG Portal last year, which was established to encourage transparency among enterprises on their ESG disclosures and to usher in more investment in sustainable projects. Indicators for environmental factors include new carbon emissions and water consumption per revenue and level of recycled water. For social indicators, it includes gender pay differential, employment of differently-abled individuals, and percentage of females employed and in management positions among others. Governance indicators are comprised of board size, the average age of directors, attendance rate in director meetings, and percent of independent directors on the board.

Currently, the platform features 17 companies’ ESG disclosures, which are available for public viewing. Based on the submitted data, these companies have generated 34% of CO2 emissions savings, reduced their water consumption by half, and lowered their waste production by 80% in the last three years. In addition, enterprises with a lower gender pay gap and more gender diversity in management have demonstrated to have better performance in recent years. The companies that have submitted these ESG indicators comprised almost 80% of the quoted companies in the Malta Stock Exchange with a collective value of around €3 Billion.

An association by 13 private sector enterprises, named Malta ESG Alliance (MESGA), was also formed this year to act as an avenue for Maltese businesses to work together in pushing for the national ESG goals. Since the launch of MESGA, the founding members have already undertaken consciousness-raising activities with educational institutions and commenced discussions with government entities and policymakers. Comprised of the premier enterprises from different industries on the island, the Alliance aims to influence SMEs and other large enterprises by adopting sustainable practices of its members.

Translating sustainability principles and ESG reporting into business decisions and operations, however, will not be an easy feat considering its infancy in the Maltese business environment. First, enterprises shall be able to address data preparedness to present reliable ESG data. This warrants improvements in data analytics and data governance for ESG-related information to guarantee that data is accessible and accurate. Data management across all concerned enterprises shall be crucial to ensure that the ESG information is verifiable and available to investors, regulators, and other stakeholders. Accurate ESG reporting will also require investments in technology that would provide consistent and reliable measurement, reporting, and disclosure of information.

Companies should also be able to establish a robust ESG strategy and governance structure that would reflect their commitments to sustainable practices and drive their business plans towards ESG topics. Depending on the nature of its business, an enterprise should be able to identify indicators that would reflect its level of sustainability and can be validated through an objective review. Businesses should also make sure that their strategies comply with internationally accepted standards for sustainability reporting.

Addressing these requirements shall also imply alignment of skills related to ESG assurance and sustainability.

While numerous consultancy and accounting firms have been starting to offer advisory services related to ESG audit and review sustainability strategies, it is ideal that companies should have in-house talents that can execute the business plans and monitor targets that are related to ESG reporting.

Professionals and experts in the fields of environmental science, renewable energy, green building, and sustainable finance will also be more important than ever as enterprises seek sustainable technologies and solutions.

Supporting sustainable financing will also complement the new sustainability reporting policy. For example, the Malta Stock Exchange has introduced discounted listing fees for green bond issuers that are seeking to raise funds for green and sustainability projects.

While this initiative has yet to produce tangible results, introducing other measures can be explored such as offering grant schemes to offset expenses related to external assessments of sustainability framework to further induce green financing.

The CSRD proposal shall undeniably be beneficial in the long run. Both the government and private sectors are already taking steps to enable a seamless transition to this new reporting policy, and as a result, businesses will be proactive in adhering to this regulation.

However, challenges such as data preparedness, rolling out sustainability strategies, and skills alignment of talents must still be addressed by companies. Nevertheless, this new regulation shall create more opportunities for businesses and help them explore sustainable practices and technologies that are financially beneficial in the long-term while also helping our environment and local communities.