The New EU Sustainable Finance Model
The MFSA has issued a circular outlining the legislative instruments being implemented in the area of sustainable finance at EU level, as well as the initiatives being taken by the MFSA in this regard.
The European Union’s Green Deal is an ambitious new growth strategy plan which includes substantial regulatory changes with the overarching aim of reaching net-zero carbon emissions by 2050, whilst maintaining a stable and sustainable financial system.
The European Commission is currently in the process of implementing its strategy plan which consists of:
- Unified classification system on what can be considered as environmentally sustainable economic activities, which came into effect on 12th July 2020, and encompasses all three factors of sustainability (Environmental, Social and Governance (‘ESG’) factors).
- Obligations on institutional investors and asset managers to disclose how they integrate the ESG factors in their risk processes, applicable as of 10th March 2021.
- Publication of the final EU Benchmark Regulation which phases out any conflicts of interest in the benchmark-setting process. These benchmarks will allow a significant level of comparability of climate benchmark methodologies while leaving benchmarks’ administrators with an important level of flexibility in designing their methodologies.
Other initiatives include, inter alia, a public consultation on the Non-Financial Reporting Directive (NFRD) as well as publishing FAQs on the work of the European Commission and the Technical Expert Group on Sustainable Finance on the EU Taxonomy and EU Green Bond Standard.
In anticipation of these regulatory changes, the MFSA will be consulting with financial market practitioners and regulated entities in order to increase awareness and to assess the impact of these legal requirements through consultations, circulars, questionnaires, and assessments quantifying domestic institutions’ exposure to climate policy relevant sectors (CPRS).
The MFSA has encouraged market participants (including licence holders) to familiarise themselves with the new requirements and to reflect any new obligations or procedures within their respective policies framework. The MFSA will also be consulting with all relevant stakeholders before seeking to implement the relevant EU legislation in line with the requirements of the local market.
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Author: DFCS – DF Advocates