“ESG Action Reports are a soup of acronyms that need clarification and a commonly accepted definition of relevant concepts to create a new, shared perception that leads to more trust,” says Dr. Peter Gassmann, Global Strategy Leader and ESG Head of PwC’s global network. He emphasizes that sustainable financing has not yet become a dominant criterion for banks, although it is an essential lever for achieving the goals of sustainable development. However, events such as the war in Ukraine, the Covid pandemic and the energy crisis are acting as catalysts for acceleration.
For Gassmann, Greece can become a frontrunner in the whole effort as it has every opportunity, with the help of the EU Recovery and Resilience Fund (RRF), to make its mark on the frontline of sustainable investments.
How can Greece lead the way in this process?
Greece as a country and Greek companies as individual entities have made great strides in implementing environmental, social and governance (ESG) criteria and moving towards green and sustainable investments. The RRF can also play a pivotal role by acting as a catalyst for growth, with the parties involved following ESG guidelines. Greece’s membership of the EU is an integral part of the adoption and implementation of the regulatory framework and thus sets an example both for local actors and at international level. In other words, if the stakeholders involved act quickly and decisively, the country will have all the necessary potential to excel in sustainable investments, attract international capital and lead by example at European level.
What is the status of ESG reporting and how do you see the situation evolving?
The current reporting landscape can best be described as the “alphabet soup” of choice, which at the same time is rapidly evolving.
When it comes to ESG standards and reporting methodologies and requirements, companies and regulators are being overwhelmed with a multitude of acronyms and methodologies, leading to confusion, significant challenges in reporting comparability, the risk of cherry picking and numerous opportunities for greenwashing.
At the same time, major global events such as the war in Ukraine, the pandemic and the energy crisis are acting as an accelerator, especially with regard to the social and governance aspects of ESG. These crises underscore the need for strong regulatory structures, guided by values such as transparency and morality, while corporate governance is an essential part of maintaining social structures.
However, even as we speak, in relation to the EU, there are significant steps towards the convergence of multiple framework providers, standard-setters and other bodies, which are the key stakeholders in relation to ESG standards and reporting. And this convergence will help move towards a unified approach and a single set of global reporting standards. The same trend applies to both the UK and the US, indicating a global move towards the adoption and implementation of a ‘single currency’ at multinational and cross-sectoral levels.
And I cannot stress enough that confidence in the accuracy of reports is key to ensuring the effectiveness of our capital markets.
It is also important to understand that current standards are more of a point-in-time consideration. Instead, we should also think about how we monitor and measure transformations and ongoing processes.
This global shift is having a serious impact on all large companies as they must undergo a significant transformation in order to achieve the above goals. And to that end, we need a more dynamic way of understanding this roadmap to help track its progress.
We have seen an overwhelming surge in sustainable finance over the past few months. Is that enough to meet global demand? And what challenges are we facing?
Sustainable finance is considered a key factor in achieving sustainable development goals at local and international level. However, despite impressive recent growth, the sustainable finance market has come a long way towards maturity. And we must also bear in mind that time is of the essence: there are just under eight years to move forward and achieve the United Nations Sustainable Development Goals (SDGs) by 2030, which will require global investments of US$5 to US$7 trillion per year year require .
This means that there is still a long way to go that we have to cover in a short time. However, with swift endorsement and coordination, we can achieve the economic and sustainable impact of sustainable finance.
As for the challenges, one can cite the fact that potential issuers face barriers to issuing sustainable finance, while at the same time investors face difficulties in comparing sustainable securities. As I mentioned earlier, ESG ratings have unclear methodologies, inconsistencies and delays, and this complexity leads to longer timeframes for issuance of sustainable securities and unclear project pipelines. Another issue that comes into play is the reputational risks for investors and issuers when accused of greenwashing, as companies face unclear disclosure standards that make comparisons difficult. Finally, despite recent growth, it is still difficult to find sustainable financing that meets investors’ requirements in terms of ticket size and risk/reward profile, also given that while primary market demand is strong, however, the secondary market remains weak.
Can these challenges be successfully met and is there a framework that can facilitate the process?
In fact, there is, and fortunately for us, it already is. I am referring to Financial Market Infrastructures (FMIs), which are key components of the financial system and provide services that are critical to the proper functioning of financial markets.
FMIs are experienced in creating information and connectivity efficiencies in traditional financial markets. As such, the market can draw on this experience to solve some of the fundamental challenges facing sustainable finance around the world today.
Given that the ability to transmit rules-based information within FMI systems is already in the market, integrating ESG disclosure data files could be a relatively seamless addition to the market. For example, Euroclear’s EMX messaging system for automated fund management and Clearstream’s OneClearstream asset management portal could both be built to include this simplified reporting capability.
To quantify the impact of this development, we believe that a cross-border FMI-led approach has the potential to boost the growth of the sustainable finance market by up to 2.5%. This surge represents up to $25 trillion in additional capital to be mobilized in the sustainable finance market by 2030. And most of that additional capital could be channeled to emerging and developing countries that are in dire need of sustained investment.
Additionally, FMIs can facilitate sustainable finance that looks beyond socially responsible investing for real and measurable impact. To this end, the OECD estimates that only 10% of investments in sustainable finance are definitely aimed at sustainable development. This means that the additional capital mobilized through a cross-border FMI-driven approach translates into global time savings of up to 0.6 to 1.1 years in funding the United Nations SDGs, bringing us to the 2030 target brings closer.
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