Issue link: https://maltatoday.uberflip.com/i/1483254
Jannico Cabanero Jannico Cabanero is Junior Economist at PKF Malta 8 OPINION 03.11.2022 ESG in Malta: trends and prospects I n June of this year, the Europe- an Commission has reached a provisional agreement on the Corporate Sustainability Report- ing Directive (CSRD) proposal which aims to improve the re- porting and disclosures of com- panies relating to non-financial activities, particularly those that are related to environmental, social, and governance (ESG) is- sues. e proposal features more detailed reporting requirements that are aligned with the manda- tory EU sustainability reporting standard and requires an assur- ance of such reported informa- tion. is shall apply to all large enterprises and all listed compa- nies on regulated markets (ex- cluding 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 im- portant in making any major business decision. In the case of ESG, there are numerous policy changes and regula- tions 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 biodi- versity, and funding the green transition. ese new policies will introduce opportunities for businesses to adopt more sus- tainable practices and revisit their current processes to align with ESG principles. Here in Malta, several initi- atives were also introduced in line with the new sustainability reporting policy. e Minis- try of Energy, Enterprise, and Sustainable Development to- gether 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 sustain- able projects. Indicators for environmental factors include new carbon emissions and wa- ter consumption per revenue and level of recycled water. For social indicators, it includes gender pay differential, em- ployment 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, at- tendance rate in director meet- ings, and percent of independ- ent directors on the board. Currently, the platform fea- tures 17 companies' ESG dis- closures, which are available for public viewing. Based on the submitted data, these com- panies have generated 34% of CO2 emissions savings, re- duced their water consump- tion by half, and lowered their waste production by 80% in the last three years. In addition, enterprises with a lower gen- der pay gap and more gender diversity in management have demonstrated to have better performance in recent years. e companies that have sub- mitted these ESG indicators comprised almost 80% of the quoted companies in the Malta Stock Exchange with a collec- tive value of around €3 Billion. An association by 13 private sector enterprises, named Mal- ta ESG Alliance (MESGA), was also formed this year to act as an avenue for Maltese business- es to work together in pushing for the national ESG goals. Since the launch of MESGA, the founding members have already undertaken conscious- ness-raising activities with educational institutions and commenced discussions with government entities and pol- icymakers. Comprised of the premier enterprises from dif- ferent industries on the island, the Alliance aims to influence SMEs and other large enter- prises 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 busi- ness environment. First, enter- prises shall be able to address data preparedness to present reliable ESG data. is war- rants improvements in data analytics and data governance for ESG-related information to guarantee that data is acces- sible and accurate. Data man- agement across all concerned enterprises shall be crucial to ensure that the ESG informa- tion is verifiable and available to investors, regulators, and other stakeholders. Accurate ESG re- porting will also require invest- ments 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 struc- ture that would reflect their commitments to sustainable practices and drive their busi- ness 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 val- idated through an objective review. Businesses should also make sure that their strategies comply with internationally ac- cepted standards for sustaina- bility reporting. Addressing these require- ments shall also imply align- ment of skills related to ESG assurance and sustainability. While numerous consultan- cy and accounting firms have been starting to offer advisory services related to ESG audit and review sustainability strat- egies, 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 sci- ence, renewable energy, green building, and sustainable fi- nance will also be more impor- tant than ever as enterprises seek sustainable technologies and solutions. Supporting sustainable fi- nancing 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 sus- tainability projects. While this initiative has yet to produce tangible results, intro- ducing other measures can be explored such as offering grant schemes to offset expenses re- lated to external assessments of sustainability framework to further induce green financing. e CSRD proposal shall un- deniably be beneficial in the long run. Both the government and private sectors are already taking steps to enable a seam- less transition to this new re- porting 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 compa- nies. Nevertheless, this new regulation shall create more opportunities for businesses and help them explore sustain- able practices and technologies that are financially beneficial in the long-term while also help- ing our environment and local communities.