Thought Leadership

ESG – Malta’s response

Environmental social responsibility within the financial services industry

e are living through times of unprecedented change; a global turning point involving various operators across all industries, including too the financial services sector, from banks to asset management companies of which operators are adopting a more conscious approach in basing operational and investment decisions on Environmental, Social and Governance (ESG) evaluation criteria.

These are the principles which in fact identify the impact that such choices have on environmental sustainability. It is in no way a new selection criterion, rather an approach that has been around for decades, but which was previously only adopted by those who, at their own discretion, wished to do so.

Today, however, such criteria are becoming more standardized with economic operators obliged to refer to them in compliance with European reporting standards, of which primary purpose is to identify solutions for the development of sustainability through well-defined and documented actions of which results are clearly communicated.

We are living in a world where, together with the objective of economic return, investors themselves appear to be placing greater importance on the type of investment and the impact of the income being generated, so as to ensure that such processes are consistent with their personal values. The financial services industry, in particular, is in fact experiencing a greater focus from all stakeholders in ensuring a successful and sustainable future. This is precisely why the topic of ESG has gained such attention and following of late.

Within this context, the Maltese jurisdiction has also been able to position itself at the forefront, embarking on numerous initiatives both within the environmental framework and the financial services industry.

As a member of the EU since 2004, Malta today presents itself as an ideal, robust and internationally recognised financial services centre. Despite the fact that the jurisdiction is perhaps a newer entrant compared to other more traditional domiciles, Malta has always positioned itself and continues to position itself at the forefront of the financial services industry, particularly within the funds and asset management sector. Even insofar as social responsibility and environmental sustainability, the country continues to reach significant goals and milestones in maintaining an innovative approach to such issues as well.

For example, the Malta Stock Exchange (MSE) recently launched the ‘Green Market’ allowing the listing of Green Bonds on the local capital markets, for issuers seeking to raise finance for green projects, and incentivising such project issuers with discounted listing fees. Furthermore, the Maltese financial services regulator – the Malta Financial Services Authority (MFSA) – monitors and continues to emphasise in its communication with the industry, the need to adhere to the parameters of the European Sustainable Financial Disclosure Regulation.

Even certain operators themselves, for instance Bank of Valletta plc, Malta’s largest banking group, are adopting a policy of encouragement towards investors to select companies and investments with higher ESG ratings.

When looking at the funds and asset management sector in particular, operators within this sector are able to find investment vehicles perfectly suited to host ESG compliant strategies; in addition to the fund vehicles regulated by the respective EU Directives, one may also find regimes and rulebooks exclusive to the Maltese jurisdiction, namely Professional Investor Funds and Notified Alternative Investment Funds, that can also be easily adapted to cater for ESG-related investments.

Such investment fund typologies provide greater flexibilities, less onerous regulations, and quicker, more efficient time-to-market compared to other fund structures. This coupled with other major benefits including cost efficiencies, high level quality of operators, a pro-business regulatory approach, a ‘can-do’ industry mind-set, favourable taxation, and other significant considerations, allow Malta to maintain its position as a leading alternative European fund domicile of choice.

Within the environmental context, one also continues to witness the fact that Malta is already well-positioned to fully comply with the European Green Deal which deals sets a 2050 deadline to becoming a carbon-neutral. Moreover, the country is working to anticipate and strengthen such results with Gozo (Malta’s sister Island and the second in the Maltese archipelago in terms of size) aiming to become the pioneer European territory in establishing a zero-impact economy through the introduction of various innovations including an entirely electric public transportation system, circulation of zero-emission vehicles, increase of renewable energy devices, etc.

The Maltese government also continues to adopt further strategies such as the creation of green jobs, favourable taxation for motorcycles, and for vehicles licenced only for weekend use, construction of vertical gardens, and financing for the development of particularly innovative technologies in the field of renewable energy. All such factors therefore have contributed and are set to continue to contribute to the creation of a European jurisdiction which is increasingly aware of the importance and value merited by sustainability.

The future of aviation is strictly tied to several factors