Sustainability – What to expect in 2019?
We can expect that it becomes increasingly necessary for financial institutions to outline how they manage sustainability related risks, both due to an increasing interest from stakeholders and due to new regulations. It will be worthwhile keeping an eye on what happens in Brussels, where the European Commission has proposed three separate regulations aiming to make the European financial system more sustainable. The regulations aim to establish a unified taxonomy of sustainable economic activities, improving disclosure on how investors integrate sustainability risks, and to create a new category of benchmarks.
It seems clear that ignoring sustainability will not be an option anymore. As sustainability becomes increasingly more salient it will be on top of stakeholders’ minds, and businesses will have to adapt accordingly in order to take advantage of the possibilities that this will provide.
A lot happened in 2018
The focus on sustainability within the financial industry drastically increased in 2018. In particular, numerous regulators signalled that they will start – or already have started – monitoring how financial institutions manage sustainability-related risks. The EU has been very active in this area since the European Commission adopted the action plan on sustainable finance in March. For example, the European Securities and Markets Authority (ESMA) announced that they will pay extra attention to non-financial information related to environmental matters when examining the financial information published by listed companies.
Furthermore, the European Insurance and Occupational Pensions Authority (EIOPA) recently published a draft with possible changes to Solvency II with the aim of making insurance companies integrate sustainability risks and their possible long-term consequences when choosing their investments. The EIOPA also proposed changes to the Insurance Distribution Directive (IDD) which aim to make sure that sustainability considerations are included in the advice that investment firms and insurance distributors offer to clients.
The Swedish Financial Supervisory Authority (FI) has also taken a keen interest in sustainability during 2018. FI was one of the founders of the Network for Greening the Financial System (NGFS) – which consists of central banks and supervisory authorities from around the world – who this year published their first report about the risk that climate change pose to the financial system. Furthermore, the Director General of FI, Erik Théeden, was chosen to chair the newly founded global Sustainable Finance Network.
On the home front, FI recently released three reports about sustainability. These focused on the sustainability information provided by fund managers, whether sustainability risks are included in the process of granting credits to firms, and how firms integrate sustainability in their corporate governance.
Furthermore,in 2018, the media and public at large continued to scrutinize how banks andother financial institutions handle questions related to climate change, money laundering, and corruption. Numerous published articles and reports were critical of how these issues were dealt with.
Do you have questions about the incoming regulations or do you want to hear more about sustainability? If so, do not hesitate to get in touch!