As the world transitions to a low-carbon economy, the drive towards scaling up the financing of investments which embrace ESG (environmental, social and governance) principles and result in environmental benefits continues to gain traction. This drive carries with it the need to reallocate capital into sustainable investments, which, in turn, necessitates a diverse supply of effective and desirable financial instruments beyond the conventional type.
To this end, the Malta Stock Exchange (the “MSE”) has recently announced that the Malta Financial Services Authority has approved the Bye-Laws for the establishment of the ‘MSE Green Market’, published on the 25th February, 2021. The introduction of this new market segment is a significant step on the path towards greening the local economy through sustainable finance, providing issuers seeking to raise finance for green projects with an avenue for the listing of green bonds on the local capital markets.
In terms of the Bye-Laws, for a project to be considered eligible for green financing it must meet a set of criteria based on the Green Bond Principles, a voluntary set of principles intended for use by market participants, formulated by the International Capital Markets Association (ICMA). In this respect, a green project must make a substantive contribution to one of the six environmental objectives identified in Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investment, and amending Regulation (EU) 2019/2088 (otherwise referred to as the EU Taxonomy Regulation), these being:
(1) Climate change mitigation;
(2) Climate change adaptation;
(3) Sustainable use and protection of water and marine resources;
(4) Transition to a circular economy;
(5) Pollution prevention and control; and
(6) Protection and restoration of biodiversity and ecosystems.
Additionally, qualifying green bond issuers must ensure that they have in place clear policies on: (i) the utilisation of the proceeds of the bond for the relevant green projects; and (ii) the management of such proceeds. Reporting mechanisms certified as being in conformity with the established green bond standards by qualified, accredited external valuers must also be employed.
While the market potential looks promising, co-ordinated actions from multiple stakeholders to reduce market barriers and promote sustainable market-based solutions will be key for the growth and viability of the MSE Green Market. All eyes will be on the take-up, by prospective issuers, on this new product, as well as on the prospect of other ESG-borne products such as social bonds, sustainability bonds and sustainability-linked bonds being added to the list on non-conventional financial instruments available in the local market.
For further information on the local capital markets and the establishment of the new green market segment, please contact us on firstname.lastname@example.org.