GREEN IS GOOD
Is greed green, green greed or green good in the financial sector?
Last week was the Climate Finance Week in Ireland #CFWI20. Industry professionals form the financial sector discussed the link between finance and the climate - but how is the link between finance, the environment and the ESG agenda in general? Is the industry's take on green finance and climate change yet another money-making product on the shelf?
In the 1987 movie "Wall Street," Michael Douglas as Gordon Gekko gave a speech where he emphasised that: “Greed is Good”.
Though only a character in a movie, Gordon Gekko’s coolness have been a motivator for many of today’s bankers – at least those who were boys in the 80’s. Among those boys of the 80's, today’s bankers, the discussion about being green has finally caught attention and truly reached the sector. The ESG-agenda is not only a mere buzzword in the financial sector, it's actually now a central pillar in most investment strategies.
What is happening in the sector?
Environmental, social and (corporate) governance, ESG in short, measures the societal and sustainability impact of every business activity. From procurement to production and sales. Also in the financial services sector.
As a natural consequence, ESG investment funds and ESG Bonds have emerged, intended for investors who are looking to responsibly invest in companies that manage their impact on the environment and society at large.
What about ESG compliance and governance?
How do we measure impact? How to we prioritise the three elements of ESG? As we work with compliance and governance in Howart Compliance, those are some of the questions we meet when speaking with our clients about the challenges and opportunities within the ESG agenda.
New legislation will be introduced to regulate sustainability in the financial sector. But how will the upcoming sustainable finance regulation affect issuers and investors?
In May 2018, The European Commission announced an action plan on sustainable finance. The plan included four components. In June 2019, the Technical Expert Group (TEG) on Sustainable Finance published reports on each of the four components described below:
A legislated taxonomy that aims to facilitate sustainable investment. A taxonomy that will clearly define a list of economic activities assessed and classified as green and sustainable based on their contribution to EU sustainability related policy objectives.
EU Green Bond Standard (GBS)
Final report proposed by TEG
A voluntary, non-legislative green bond standard that will award the ‘EU Green Bond’ label to those who wish to meet the GBS requirements. The GBS will be voluntary. Compliance with the GBS label will need to be assessed by an EU-accredited verifier.
Climate benchmarks and benchmarks’ ESG disclosures
Provisional report proposed by TEG
A proposal for the creation of two new climate benchmark labels (EU Climate Transition Benchmark and a Paris-aligned Benchmark), and the requirements index providers would need to meet in order to apply these labels to their benchmark products. In addition, this proposal also includes disclosure requirements for Sustainability benchmarks and recommendations for broad benchmarks.
Non-binding guidelines on non-financial reporting (reporting climate related information)
Directive published by European Commission
This is an addition to the non-financial reporting Directive (2014/95/EU), which requires large, publicly listed companies with over 500 employees to disclose certain non-financial information. The European Commission has published these additional non-binding guidelines to provide guidance to companies on:
disclosure of climate risks in alignment with TCFD recommendations and
disclosure of non-financial information that aligns with the European taxonomy.
Sustainability in Disclosures and Accounting for Investors
In addition to the above disclosure requirements for corporates, the European Commission also set out requirements for asset managers and financial market participants in relation to the disclosure of sustainability risks and impact. This regulation would come in effect under MiFID II, UCITS, AIFMD and Solvency II. Regulation is needed to secure a uniform market and prevent misleading of investors with, for example, greenwashing.
Green is Good
“The point is, ladies and gentleman, that greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms -- Greed for life, for money, for love, knowledge -- has marked the upward surge of mankind“
Gordon Gekko still works; Greed is good – also for the environment. BUT regulation is needed and welcomed. Greed, for the lack of a better word, drives change. It drives and motivates us all to strive for more, for something better. And, to the benefit of future generations, we're now all looking into a focus with much focus on the environment, the societal impact of conducting our respective business and the governance thereof. All this, in from our point of view, can be comprised to a revised version of Gordon Gekko's much quoted statement about greed: "Green is Good".
It makes sense to focus on the ESG agenda, including the 17 UN SDG's - the United Nations Sustainable Development Goals. Why? Because green is good. It's good business ethics. And green is good business.
Want to know more about how we can assist with the ESG agenda and coming regulation? Click the button and reach out: