As part of our series of discussions regarding the European Union’s Green Deal initiative, AmCham held a webinar on 28 October, this time focusing on Sustainable Financing and the EU’s relevant taxonomy. Our keynote speakers were Barbara Koncz, Partner at PwC, and Gábor Gyura, head of the Sustainable Finance Department at the Hungarian National Bank. Thomas Narbeshuber, Managing Director of BASF Hungary and AmCham EU Green Deal Working Group Lead moderated the discussion.
In his opening remarks, Mr. Narbeshuber expressed that sustainability is something all of us will have to accommodate to eventually, and we have to adapt to the new realities of our time.
Barbara Koncz’s keynote presentation focused on the European Union’s approach to sustainable finance. She guided the audience through the various steps the bloc has taken on the matter. The first of these was the development of the Action Plan on Sustainable Finance, which provided the basis for a multitude of subsequent initiatives, such as the Green Deal. She argued that the EU’s goals are very ambitious and meeting them will not be easy. Conversely, the new regulations will be tough – which means that the funds available for the initiatives are key. To that end, the EU is planning to allocate over €1 trillion worth of backing toward sustainable finance.
As for the legal background of the EU’s actions, the bloc is relying mostly on EU legislation, more specifically a series of sector-specific, detailed rules tailored to accommodate long-term plans. Companies will play an important role in these plans, as it will be their task to put the new regulations into practice.
Ms. Koncz noted that the EU’s Action Plan has three main pillars: reorienting the capital flows towards more sustainable economic activities; mainstreaming the inclusion of sustainability into risk management; and fostering transparency and long-termism by, for example, requiring reports on actors’ relevant regulatory performance.
To clarify what activities are sustainable, the EU is working on a new taxonomy that expressly specifies these terms. The basis of this taxonomy is a list of 6 (to be increased to 10) environmental objectives: an economic activity is considered sustainable if contributes to at least one of the environmental objectives and does not hinder the others.
All in all, as Ms. Koncz argued, companies will need to get used to the idea of sustainability and the new way of working it heralds. As she explained, the current initiatives are only recommendations yet; however, there are some obligations on the horizon, too. The Corporate Sustainability Reporting Directive (CSRD) will require companies of various sizes to report on their sustainable activities. The contents of these reports will need to adhere to a stricter set of rules, they will need to be in line with the taxonomy, they will require audit insurance, and they will also be made available to the public. Although the obligations will be released in phases, Ms. Koncz recommended that companies start paying attention to the matter and take note of the developments.
Gábor Gyura’s keynote presentation focused on how Hungary is putting sustainable finance into practice. As he argued, all sustainability goals come with huge investment needs. Although plenty of EU funds will be made available to help in this regard, private investment will also be needed.
In more developed markets, banks have already recognized the importance of sustainability and introduced tailor-made financing solutions. Although this is not yet the case in Hungary, these actions serve as inspiration – for example, the Hungarian National Bank has already decided to help the Hungarian financial system attain a higher resiliency to environmental risks and efforts, and green projects. The bank is relying on a 3-pillar strategy: providing initiatives in the financial sector, furthering social and international relations, and the ‘greening’ of Hungarian National Banks’ own operations.
Mr. Gyura also touched upon the Hungarian National Banks’ ‘green recommendations’ to banks. For one, banks should reduce the financing of unsustainable economic activities, and develop green financial solutions and products. They should also develop regulatory incentives to step up green lending, such as better terms for companies that finance green projects, and help the proliferation of green bonds – a market that is still growing at the international level despite the pandemic. In Hungary, this market is still in its infancy, but it is gaining traction. The Hungarian National Bank invests heavily in green bonds and advocates for their use.
Mr. Gyura also expressed the view that the EU’s Green Bond Standards may become the new gold standard in the green bond market. These bonds are similar to their traditional counterparts, with the exception that they can only be used on green projects, their uses are tied to new criteria and quality expectations, and they can only be acquired if a project is in line with the EU taxonomy. Hungary’s green bond market currently falls short of the EU standard, but its potential is already recognized by investors. Mr. Gyura wound up his presentation by exploring the Hungarian National Banks’ efforts at environmental sustainability.
Following Ms. Koncz’s and Mr. Gyura’s keynote presentations, the session was concluded with a live Q&A segment.
We would like to extend our thanks to Ms. Koncz and Mr. Gyura for their presentations, and Mr. Narbeshuber for moderating the event.