The green transformation in Europe is increasingly influencing all sectors of the economy, including the financial industry. Successive regulations are forcing banks and other institutions to consider ESG issues when making decisions about granting investment loans to companies or purchasing shares or bonds. On the other hand, subsequent directives and regulations provide a basis for assessing the degree of “greenness” of projects. The recently created coordinating platform for the industry, POLSIF, is meant to facilitate this green transition.
“Sustainable financing is a set of actions by financial institutions and the public sector, aiming to redirect the flow of capital towards projects and more sustainable and environmentally responsible companies,” says Krzysztof Kamiński, member of the Management Board of Millennium TFI, the president of the Sustainable Investment Forum Poland (POLSIF). This is primarily related to a series of European initiatives associated with the European Green Deal and the so-called Fit for 55 legislative package, which aim to make Europe climate-neutral by 2050 and reduce greenhouse gas emissions by 55% by 2030. Financial institutions are obliged to implement and report on their efforts to finance such projects.
This means that banks, investment funds or private equity firms, which finance the operations of companies by granting them loans or investing in their growth through purchasing shares, not only consider the business aspect of the project but also their environmental impact, ethical issues and social responsibilities. The SFDR regulation, in effect since March 2021, obliges insurance companies and investing institutions to disclose sustainability-related information in the financial services sector. Krzysztof Kamiński emphasizes that financial institutions bear the responsibility to gather information, make appropriate decisions, and redirect capital towards more sustainable projects and companies.
Assessment of a company’s “greenness” is aided by the Taxonomy Regulation adopted in 2020, designed to facilitate sustainable investments. The goal is to mitigate climate change, adapt to its changes, sustainably use and protect water and marine resources, transition to a closed-loop economy, prevent pollution and control it, and protect and restore biodiversity and ecosystems.
“We have, for example, indicators related to the so-called greenness of the loan portfolio, or Green Asset Ratio. It is supposed to show what part of the bank’s loan portfolio is directed towards green projects, assets. We see that in credit processes, as well as in risk assessment processes for banks and other financial institutions, ESG factors must be taken into account. Similarly for investment funds, we have obligations in the form of implementing ESG requirements in investment decision making process and portfolio risk assessment,” explains Kamiński.
Another challenge for the financial sector will be the implementation of the CSRD directive. According to a set schedule, from 2024 to 2027, it will oblige companies to publish non-financial reports, which should include a range of environmental data, such as emissions and pollution generation. These obligations will also apply to banks and investment funds.
“Looking from an investor’s perspective, we are halfway there. We will have to increasingly take into account various ESG aspects. The challenge for many is that we do not have access to data from issuers or companies,” points out Kamiński. The process of collecting non-financial data will progress, and there will probably have to be some kind of information center set up. There are projects underway that are heading in this direction, and there will also be a European Single Access Point, a place where all non-financial reports can be collected and to which we as investors will have access.
This process is facilitated by the financial sector cooperation platform, the Sustainable Investment Forum Poland (POLSIF), a non-profit organization founded by nearly 30 representatives of financial institutions – banks, investment funds, private equity funds, consulting firms, and the largest business universities in Poland. The goal of the association is to create a platform for sharing experiences and mutual education for the financial environment. It also aims to be an advisory body and set standards and best practices for financial institutions, learning from its own mistakes or drawing on good examples from European institutions. Similar platforms already exist in other European countries: the UK, France, Italy, Romania and the Czech Republic.
“The goals and mission of POLSIF are related to the broad promotion of sustainable investing and financing. Our activities focusing on education and promotion of good practices will revolve around these two themes,” explains the president of POLSIF. “We want to do this through trainings, networking meetings, preparing reports, interpretations, conducting specialized research in the area of sustainable finance. We also want to be a platform that connects the interests of many different financial institutions from various parts of the sector, because we have industry chambers for banks, investment funds or brokerage houses, but there was no platform that would connect the interests of all these groups. That’s exactly what POLSIF is,” he concludes.
