Issue link: https://maltatoday.uberflip.com/i/1500031
8 OPINION 18.5.2023 All eligible companies must tailor exact measurements for ESG George Mangion George Mangion is a senior partner at PKF, an audit and consultancy firm, and has over 25 years' experience in accounting, taxation, financial and consultancy services. His efforts have made PKF instrumental in establishing many companies in Malta and established PKF as a leading professional financial service provider on the Island FOLLOWING two years of Covid depri- vation and sluggish business, saddled by a war that Russia inflicted on Ukraine - all this pushed inflation that sent oil, gas and other commodity prices, plus inter- est rates to unprecedented heights. Now, when some sort of financial stability is slowly returning, little did operators feel the sudden obligation to report under rules of ESG. In Malta, an alliance was founded among a group of companies with a chair- person - all trying their best to smooth the upward path towards full obligations set by the EU rules. In fact, as if by stealth, several pieces of regulation were intro- duced in the European Union directly to address the industry's role in funding environmentally and socially sustainable activities. Notice the new nomenclature, culmi- nated in an EU Taxonomy Regulation. is is no walk in the park. In brief, it is the most notable and advanced regula- tory framework so far, as it uses com- prehensive science-backed criteria and numerous thresholds. When announced, most objectives of the EU Taxonomy will gradually enter into force this year. is is a unique classification system, covering a list of environmentally sus- tainable economic targets. It could play an important role in helping the EU scale up sustainable investment and success- fully implement the European green deal. Many hope that it would provide com- panies, investors and policymakers with appropriate definitions for economic ac- tivities that can be considered environ- mentally sustainable. Early this year our energy ministry has appointed an ex-banker to head a Pro- ject Green with a tidy piggy bag of €700 million ostensibly aimed to improve the use of green spaces. In the past, ESG re- porting was a largely voluntary effort, yet now it has become a vital expectation of compliance from business sectors. Such growing pressure to meet ESG targets and reporting presents both significant challenges and golden opportunities for selection process in asset and private eq- uity world. e challenges arise from ESG disclo- sure are making it imperative for the local banking community to seriously educate its portfolio of customers. Naturally, one expects local banks, which are now reporting improved profits to set aside a tidy sum to educate and guide their cli- ents. A missed opportunity is the lack of bank participation in green energy projects which can harness the sea in the EEZ, so as to generate offshore clean en- ergy from floating solar and wind power. Perhaps at the eleventh hour, local banks and the Development bank will be given the fiat from Castille to start building a broad ecological and green energy poli- cy, before the EU taxonomy forces us to comply. at will be the day, when medium sized companies succeed to improve public reporting about their performance across a variety of Environmental, Social, and Governance (ESG) issues. Effective ESG disclosure helps external stakehold- ers (like bank managers, authorities, EU funds or potential customers) better un- derstand risks around operations, emis- sions, or supply chain issues that manage- ment may have previously kept private. In Malta, it is true that environment degradation has been the subject of many protests by NGO's and public-spirited bodies. It so happens this week there is a planned National protest by 250 aca- demics. Academics are flanked by Movi- ment Graffitti, Friends of the Earth Malta, Flimkien għal Ambjent Aħjar, Din l-Art Ħelwa, Nature Trust Malta-FEE, Għaw- dix, BirdLife Malta and Ramblers' Asso- ciation Malta. Mirroring part of ESG obligations, this unprecedented protest group will try to raise awareness for an ESG model that en- hances quality of life. Apart from specific claims, they are demanding institutional and policy reforms in the fields of envi- ronment, planning, and ODZ land abuse. Back to ESG, there are a variety of frame- works which apply, including the Global Reporting Initiative (GRI), the Principles for Responsible Investment (PRI), and the Sustainability Accounting Standards Board (SASB), among others. For instance, a small technology com- pany may wish to disclose its total carbon emissions. is is a step in the right di- rection. at is why, there is the need for ESG yardsticks, in the form of scorecards, which are used to gauge performance within an organization. In fact, in Europe one finds more and more entities creating in-house scoring systems to monitor and conscientiously report on their own per- formance. ESG disclosure helps stakeholders (like investors, auditors, creditors, employees, prospective customers, etc.) understand how a company is managing ESG risks and opportunities. Ineffective or mislead- ing ESG disclosures may be considered greenwashing. Greenwashing is when the management team makes false, unsub- stantiated, or outright misleading state- ments or claims about the sustainability of a product or a service, or even about entire business operations. One may encounter greenwashing which is unintentional, perhaps due to a lack of knowledge or understanding on the part of management, but sometimes greenwashing is also carried out inten- tionally. Ideally, Castille should appoint an ad hoc regulator and offers grants, tax cred- its and scientific assistance to all sectors in gearing up to the challenge. Locally, one notices how the galloping building and real estate sector forms a substantial part of annual GDP. Focusing on the real estate industry, one wonders how much attention is being given in their approach to request disclosure when signing prop- erty owners. Again, the social element is just as im- portant. Bricks and mortar may make a building, but the overall happiness and productivity of those who live or work within it are equally important. Are owners fully conscious of the need for a reduction of energy consumption, of cut- ting waste, adequate sound proofing, use of environmentally friendly and sustaina- ble building materials, and regular energy audits? As buildings are constantly exposed to the elements, future proofing them and fitting of PV panels is of the utmost im- portance to achieve certification as ESG compliant (perhaps this may reduce deaths so far caused from uncertified, col- lapsing structures). Emissions targets may be the biggest driver behind the importance of ESG certification concerning utilities running clean electricity (eg from hydrogen) as opposed to burning LNG. Locally, reporters continually point to climate-related abuses. ese temporarily grab the headlines, such as over- popu- lation, licensing labour permits for more TCN's, congestion in beaches due to three million (Sun&Sea) tourists coupled with unbridled importation of ICE cars. e latter remain affordable when com- pared to prices of zero-carbon EV motors - again some complain charging points are few and overstretched. In conclusion, PKF has organized a se- quel to its first ESG conference which is now hosting a business breakfast booked on 27 June at the Hilton Portomaso Suite. is is a must-attend ESG event which is addressed by a formidable team of 12 lo- cal and US speakers. For more information, contact Clarissa Galea on 2148 4373.