Sustainability reporting standards now obligatory for businesses

A high level of sustainability reporting demonstrates that your organization is committed to transparency.  Transparency increases trust between the organisation and its stakeholders.  It also helps the organisation receive more meaningful stakeholder feedback, thereby driving innovation and is seen as a sign of good leadership.  Sustainable investment strategies in Malta focus on integrating environmental, social, and governance (ESG) factors into the investment process to generate long-term competitive financial returns and positive societal impact.

 These strategies are designed to help international investors consider the broader impacts of their investments while aiming to achieve their financial objectives.  Here is an exploration of various sustainable investment strategies.  Let us discuss socially responsible investing.  For the uninitiated, this involves actively excluding investments in companies or industries that contradict specific ethical guidelines.  Common exclusions include companies involved in tobacco, the production of arms, and fossil fuels.  

This focuses on investing in entities that align with any investor's moral and ethical values. Now, this concept expands into Impact investing, which is aimed at generating specific beneficial, social, or environmental effects in addition to financial gains. These investments are often in areas like renewable energy, sustainable agriculture, healthcare, recreational spaces, and education. Impact investors actively seek out projects or companies that are expected to offer solutions to global challenges while providing a return on capital. 

Social and sustainable investment leads to another branch of Thematic investing, as this involves focusing on investments in specific themes or assets related to sustainability.  Examples include clean energy, green technology, water conservation, and sustainable agriculture. In Malta, this is a neglected activity, albeit the state occasionally plays lip service to it.  Once the targets are selected, how does one procure the necessary capital?  The obvious answer is Green Bonds. The Malta Development Bank “MDB” targets these objectives.  It aims to contribute towards sustainable economic development that benefits the Maltese people in line with public policy objectives.  Primarily, it wants to 

promote inclusive and environmentally sustainable economic growth actively and without any political bias to support infrastructure development by linking entrepreneurship, investment, and economic growth to improved living conditions.  It looks very hunky dory once it is on paper, but in action, it can contribute to a higher quality of life and better social inclusion.  Quoting from the MDB website, one reads that this bank has a strategic objective to offer financing facilities that support productive and viable operations where the market is unable or unwilling to accommodate such activities on its own in whole or part.  It is encouraging to note that MDB’s activities focus on complementing and supplementing the operations of market players in the provision of financing facilities, particularly to SMEs, infrastructure projects that contribute to national or regional development, and projects which are socially oriented, energy-efficient and environment friendly. 

The MDB’s operations have been partly funded by a modest initial paid-up capital provided by the Government. Launched seven years ago, with a paid-up equity of €30 million, it now reaches €80 million.  It endeavours to follow ESG principles, in a special focus to deliver schemes that support the business community to contribute in reducing greenhouse gas emissions by 2030 and reach net zero emissions by 2050.  When it follows any Green Gateway project this means it aims to pave the way for innovative financing solutions that drive environmental impact in the context of climate change.  In parallel, it provides advisory support to SMEs. Now, let us discuss MDB’s ESG policy.  Officially, it takes a twin approach taken by ensuring full integration of ESG standards in its own operations while ensuring that third-party projects which are financed through the MDB.  In theory, this contributes to an orderly transition to a sustainable economy and enhances social value. 

It is a corollary to discuss in more detail the advent and issue of Green Bonds in Malta.  The latest Green Bond was issued for €25 million with a term of 10 years and an interest rate of 4.25% by the Water Services Corporation (WSC) in July 2023 to finance several green projects around the country.  One hopes that this acts as a harbinger for more issues since, for Malta, this is another sustainable investment strategy.  =The proceeds from these Water Services Corporation bonds are typically earmarked for use in water and energy efficiency and sustainable waste management.  By contrast, while not a regulation per se, sustainability-linked bonds are becoming increasingly popular under the EU's sustainable finance framework.  These bonds generate financial returns based on achieving predefined sustainability outcomes, aligning investor returns with specific environmental, social, or governance goals. 

The application of these regulations requires close collaboration between national regulators, financial institutions and companies across Europe. Each EU member state is responsible for transposing EU directives into national law.  In general, one notes how, in Malta, through shareholder advocacy, they can propose resolutions on topics such as improving corporate governance, adopting better environmental practices, and enhancing transparency about company activities.  Can the Maltese regulators and Malta Enterprise encourage new FDI to finance projects with environmental benefits? They typically offer financial incentives for achieving ambitious sustainability outcomes.  Failure to meet these agreed targets can lead to penalties, such as increased interest rates. As an aside, the issue of a PMC two years ago concerned the novel attraction of capital for large-scale renewables in the EEZ.  

It opens an exciting opportunity to our cash rich banks to expand their concertina of sustainability lending. This helps in addressing domestic challenges such as climate change, resource depletion, ecological degradation due to severe road congestion, high cost of social housing (partly due to gentrification) and rising inequality.  The European Union has been at the forefront of integrating sustainability into financial practices and regulations. Its approach to sustainable finance is structured around a comprehensive regulatory framework aimed at promoting sustainable investment across the continent.  Here’s how EU Taxonomy works.  

This is a classification system establishing a list of environmentally sustainable economic activities.  It provides clear definitions for which economic activities can be considered environmentally sustainable, helping auditors, companies, issuers and project promoters navigate the transition to a low-carbon, resilient, and resource-efficient economy. Companies will next year need to start reporting how and to what extent their activities align with the taxonomy. PKF Advisory is offering online courses on the subject.