Sustainable Investing (ESG)
Sustainable Investing – Opportunities for Green & Sustainable Investments
Nowadays ESG criteria, based on Environmental, Social and Governance factors, are becoming as important for investors as financial indicators. Issuers are increasingly being pushed by the financial markets to comply with environmental and ethical standards. They should disclose which resources are used in the generation of their products, which suppliers are employed, which pollutant residuals may still remain in their products, etc. The Act on Accounting (part eight), implementing the Non-financial Reporting Directive (NFRD), commits concerned issuers in the Czech Republic to the above mentioned type of transparency. The issuers with more than 500 employees in average and whose financial instruments are admited to trading on the European regulated market are currently liable for non-financial reporting according to Section 32f of the Act on Accounting. However, the non-financial reporting liabilities as well as the scope of obliged entities is supposed to be extended within ongoing discussion in relation to the EU sustainable policy and review of NFRD. The Federation of European Securities Exchanges, FESE, in cooperation with Prague Stock Exchange composed and published the Introduction and Guiding Principles to ESG Reporting.
There are various initiatives within the capital markets framework that attempt to limit the climate change. For example, the Prague Stock Exchange participates in the Sustainable Stock Exchange Initiative of the United Nations. The goal of the initiative is to promote long-term and sustainable investments and the disclosure of ESG indicators in dialogue with investors, companies and supervisory authorities. With the European Green Deal and Environment action programme to 2030 the EU sets targets for the financial sector. The Strategy of the Czech Republic 2030 anchored promotion of green finance.
The EU Commission is currently working on official European sustainability Green Bonds Standards. Green bonds are considered a new form of sustainable investment. Their sole purpose is to finance ecological projects. This is intended to encourage countries and companies to issue even more Green Bonds. On the other hand, a stop should be put to possible uncontrolled growth.
At present, voluntary guidelines in form of market best practices, which are laid down in the Green Bond Principles. They are designed to ensure the integrity and transparency of the product and regulate the selection process for a project, the disclosure and management of the use of funds and the reporting requirements to ensure that the funds actually benefit society and the environment. The guidelines also include the recommendation of an external review by independent institutes, which assess the sustainability of the respective project through so-called second party opinions. There is also the possibility of an eco-rating.
The above mentioned documents does not represent exhaustive list of relevant legislation. There are ongoing discussions on the taxonomy of sustainable economic activities, on review of benchmark regulation and other sustainable issues. We recommend moninoring of ESG agenda development including relevant legislation.