ESG: Financial Law
- The future of financial services is green: ESG factors – Environmental, Social and Governance – relate to factors of an environmental social and corporate governance nature, which all market agents should integrate into their decision-making processes, from investment and creation of products and advice, to consumption.
- Having started as a voluntary movement, bringing the concern and desire of companies to integrate environmental, social and corporate governance aspects into their business models, ESG finance is today, for the financial sector and for companies in general, a road from which there is no turning back.
- Along with raised awareness about the concept of sustainability and of its importance for the future viability of the planet, ESG criteria are nowadays being adopted as a result of regulation – corresponding to a general desire to impose certain duties and mandatory objectives.
- In particular, at a European level, the European Commission has established an agenda for sustainable finance with the declared objective of boosting a transition of the financing of the economy to sustainable activity via the financial system. Initiatives such as Green Bond Standard, a taxonomy regulation n.º 2020/852 (published on 22nd June 2020), establishing common criteria and objectives to measure sustainability and Regulation 2019/2088 (published on 27th November 2019), with regard to the publication of information related to sustainability in the financial services sector, are included in this agenda
- In Portugal a decree law was approved in 2017 which requires the publication of non-financial information relative to social, environmental and corporate governance areas, alongside financial reports, thus contributing decisively towards the analysis of business performance and its impact on society, for the identification of sustainability risks and for the strengthening of trust of investors and consumers, applicable to major companies and groups.
- In capital markets, since 2019 the CMVM has identified the integration of sustainability principles (ESG) in its work as a strategic priority, on the one hand, enhancing public debate on these matters and on the other, giving weighting to environmental, social and corporate governance aspects in market practices and supervisory models.
- In addition, in March 2020 the Bank of Portugal defined as priority areas of action, the identification and evaluation of risks associated with the impact of climate change, the implementation of internal sustainability practices, the intervention in national and international forums in which measures of potential impact on the financial system are debated and the establishment of partnerships and the communication of these topics.
Why is that ESG values are important for your business?
- Banks and investment companies must understand what sustainable finance and ESG criteria are in order to identify, manage and mitigate ESG risk and to integrate ESG criteria into their decision-making processes. Deficiencies in this area will translate, in the short-term, into reputation and compliance risks and growing demands from the point of view of capital requirements.
- Access to finance, investment and consumer demand for most companies will be, in the short-term, affected by the possibility of being able to demonstrate that each company is accountable in socio-environmental terms.
- The lack of clarity in the definition of concepts at a regulatory level and, stemming from the same lack, of visibility in the benefits that this type of instrument can generate, may translate into unjustified costs and the loss of opportunities.
- There’s a direct relationship between complying with ESG criteria and reducing corporate risk in benefit of the medium and long-term interests of all stakeholders.
- But ESG finance is an embryonic market, with opportunities and advantages in the attraction of investment, with there being a significant increase in investment linked to ESG criteria and products.
How can we help?
- Sustainable finance has been, in recent years, a growing concern in different business models and Abreu Advogados has followed closely the evolution of the European and domestic regulatory frameworks, and has specialised skills in order to provide a comprehensive and interdisciplinary analysis of products offered by its clients and businesses of the financial sector, so as to integrate sustainability criteria into their policies of decision-making processes and together with its clients, adapt business activity to regulatory demands, monitoring the interaction with supervisory entities and developing innovative products and services in the area of sustainability.
- Abreu Advogados has expertise in state-of-the-art voluntary carbon offset markets which ensure transparency and consumer confidence, with recourse to cutting edge technology and in coordination with the European Union Emissions Trading Scheme.
- Abreu Advogados has advised businesses on different types of sustainable investment, namely impact investments, ethical investments, community investments, green investments, among others.