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Accountants’ Contribution in the transition towards a Sustainable Economy - Maria Mifsud

1 Sep 2020 14:11 | Anonymous
The Accountant – Is Good Governance on our Agenda?  –  Summer 2020 (MIA Publication)
This article will indicate the key initiatives being taken at national level and by the European Union (EU) to enable the shift which the financial sector needs to make to start taking environment, social and corporate governance (ESG) factors into consideration in the investment decisions. Specific observations will be made on how accountants can contribute to this transformational change towards a sustainable economy.
The EU long-term strategy on climate change, adopted by Member States’ (MS) governments earlier in March, reaffirms the full commitment of the EU and its MSs to the Paris Agreement and its long-term goals.
Further to this, the European Commission (COM) published a proposal for a regulation, the Climate Law, to enshrine in a legislation the EU’s political commitment to be climate neutral by 2050. The Climate Law, which is now subject to further consideration under the ordinary legislative procedure by the EU institutions, is one of the key actions planned in the European Green Deal (EGD) presented by the COM in December 2019.
European companies can play a significant role in a just transition towards a sustainable economy; however, voluntary action has not brought about the necessary change.
This is limited by the pre-dominant short-term focus of companies. Moreover, possible company sustainability strategies are rarely aligned with science-based targets. Research indicates there seems to be stakeholder support for a policy change ensuring legal certainty and a level playing field with a preference for a mandatory due diligence considering the specificities of different sectors and the size of companies.
In most countries, while company law allows businesses to integrate environmental and other sustainability concerns; shareholder primacy is considered by research as the key barrier for sustainability as it is likely to take precedence over long-term sustainability objectives.
To this effect, one area of the EGD Roadmap refers to the mainstreaming of sustainability in all policies, with specific attention to finance-related policies. Already in 2018, the COM released an Action Plan for Financing Sustainable Growth and building on this, the COM launched a public consultation on the renewed sustainable finance strategy. Among other objectives, the Strategy aims to provide a roadmap with new actions to increase private investment in sustainable projects and to manage and integrate climate and environmental risks into our financial system.
The clear focus of today’s boards should be on the sustainable value creation to all relevant stakeholders, including society as a whole. Sustainable corporate governance can thus help to embed sustainability into a company’s strategy, decision making and reporting processes.
In the past decades, better transparency has been one of the biggest achievements in corporate reporting. In transitioning towards a sustainable economy, it is important to understand where we are and where we want to go. In this context, accountants’ contribution in the form of corporate reporting is paramount in helping companies connect, and eventually integrate non-financial and financial information. Corporate reporting of non-financial information, including sustainability information, plays an important role in mitigating the short-termism that until recently dominated financial analysis and valuation. To this effect, there is also an ongoing debate around whether existing financial accounting standards might prove challenging for sustainable and long-term investments.
The COM speaks of the importance that companies and financial institutions improve their disclosure of non-financial information. Users of this information, mainly investors and civil society organisations, are interested about the companies’ social and environmental performance and impacts. To strengthen the foundations for sustainable investment and also in line with global trends, the COM has committed to review the Non-Financial Reporting Directive (NFRD) for a consideration of a new regulatory approach to non-financial reporting.
The Malta Institute of Accountants, under the Chairmanship of Dr Ivan Grixti from the University of Malta, created a working group of selected representatives from retail banks together with the “Big Four” and mid-tier accounting firms to discuss the COM NFRD and the COM Renewed Sustainable Finance Strategy consultation documents. The position emanating from this working group as approved by the Accountancy Board, together with the regulator’s feedback were taken into consideration by Government officials in the final submission to the EUSurvey Portal.
Recognising that sustainability poses both a direct and indirect risk to the financial sector, the Ministry for Finance and Financial Services (MFIN), the Malta Financial Services Authority (MFSA) and the Central Bank of Malta (CBM) has been integrating sustainable finance into their work streams. The MFSA aims to integrate sustainability into its ongoing supervision and reporting guidelines and has thus established an internal working group for the overall coordination on the ongoing debate and the requirements that ensue requiring policy input and implementation on sustainable finance.
The MFSA has recently joined the Network for Greening the Financial System (NGFS) which is composed of global members from Central Banks and Supervisory Authorities cooperating and sharing knowledge to address climate change and scale up sustainable finance. The CBM has been a member of the NGFS since July 2019 and is an active member in two work streams that deal with portfolio management and in the design of climate-related scenarios. The MFIN participated in a number of European Council meetings which discussed COM legislative proposals for a sustainable finance taxonomy of sustainable activities, for performance measurement benchmarks, and for disclosure of information specific to the financial sector. To inform these discussions, the Department has engaged with multiple stakeholders through specific inter-Government working groups but also through an external consultation organised in collaboration with MEUSAC. Future work will include discussions leading towards the agreement on the new regulatory technical standards and delegated acts emanating from the newly adopted regulations.
The accountants’ part in this transition requires the profession to shape its agenda to support the Sustainable Development Goals and the Paris Agreement. One way the profession can contribute to this transition is by participating in the relevant public consultations through the EUSurvey Portal and the dedicated national channels.
Vital to Europe’s financial system stability is transparency, which is also essential for moving from short-termism to a sustainable point of view. Accounting is a natural starting point and thus, the contribution of the accountancy profession has a distinct importance in making our economies sustainable.   


Maria is an economist working for the Economic Policy Department in the Ministry for Finance. She is involved in the policy coordination of sustainable finance dossiers within the Ministry. She is also a member of the European Commission’s Member States’ Expert Group on Sustainable Finance.

               

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