Society, politicians and businesses are now concerned about sustainable economic activity more than ever before. Growing market of green capital, sustainable and social debt instruments is the proof of that. The issue of green, sustainable, social loans and bonds in 2020 was estimated to exceed USD 700 billion in the world and was nearly 30 per cent bigger than in 2019, or almost 2.5 times bigger than in 2018.
Sustainability is becoming one of the key priorities on the state and business agenda. Expectations and need for collection and provision of comprehensive data about environmental impact of business activities are growing. What companies should expect considering aspirations of the European Union (EU) to become a climate-neutral continent by 2050 was discussed at the remote conference organised by SEB Bank.
Challenge is a shortage of data
This April, The Council of Europe and the Parliament reached a preliminary agreement on climate legislation of the European Union. It has established EU’s aim to reduce carbon dioxide emissions by 55 per cent by 2030, if compared with the figures of 1990; and to achieve a climate-neutral by 2050. In pursuit of the above-mentioned aims, an important role is played by financial institutions, since the transition towards a more sustainable economy will require considerable private funding. At the same time, banks must assess and control the risk, caused by climate change, of credited companies.
It is obvious, that data is critical here. However, the conference participants highlighted the shortage of data needed to make proper assessments of credited companies’ impact to the environment and, to sustainability in general. Frequently, banks and their clients do not have data needed for conducting a thorough assessment of their environmental impact. And even when companies publish non-financial performance reports, in many instances they are quite different to each other hence information provided are difficult to summarise and compare.
SEB Bank lawyer Giedrė Vėželė speaking at the conference emphasised the efforts of the European Union to amend the existing situation by applying legal initiatives aimed at ensuring transparency and data disclosure. The most important legal acts are the Taxonomy Regulation and Corporate Sustainability Reporting Directive. The above-mentioned documents lay down non-financial accountability requirements for companies, which soon will have to be considered by many Lithuanian companies.
"Taxonomy Regulation aims to define the scope of sustainable activities. Besides, companies that must publish non-financial performance reports have the obligation to reveal how and to what extent their activity complies with sustainability criteria. This obligation will come into effect from next year. So far only a small number of companies have the obligation to publish their non-financial performance reports – big companies of public interest with 500 and more employees. The number of such companies in Lithuania is about 20. But the number of companies publishing non-financial performance reports is planned to grow. The number of Lithuanian companies with the obligation to publish the above-mentioned reports is estimated to reach approximately 320, therefore they should already start making preparations for the changes", said G. Vėželė.
She noted that according to the published draft Corporate Sustainability Reporting Directive, non-financial performance reports, in other words, sustainability reports will have to be published by all big and even small and medium companies, which securities are being traded on the regulated market operating in the European Union. The requirement for all big companies to publish sustainability reports is planned to come into effect in 2023; while small and medium companies with their securities traded on the regulated market will have the obligation to publish the above-mentioned data from 2026.
Questions should be expected
"When preparing sustainability reports, not only activity data of the company but also information about its suppliers, partners, sometimes clients, will be needed. The experience of SEB Bank shows that collection of this kind of information is a time-consuming work that requires discussions, meetings, diligent analysis. Therefore, preparations should be made at the earliest possibility", said G. Vėželė.
According to her, new requirements mean that requests for information related to corporate sustainability can be received also by companies that are exempted from the requirement to publish non-financial performance reports. This type of data may be requested by creditors, suppliers, clients, investors requesting for information about CO₂ emissions, supply chain and whether the company's activity complies with the Taxonomy Regulation.
Therefore, every company should get familiarised with the above-mentioned European Union legislation, establish whether its activity meets sustainability criteria. In this case once the changes come into effect the company will have to publish sustainability reports, and make sure that all the information needed for that would be ready.
Great interest of entrepreneurs is observed
SEB Board member Vilius Juzikis emphasised that Lithuanian companies started to pay a lot of attention to environmental impact and investments into sustainability. In order to contribute to the goals of the European Union climate change policy and to control the risks related to the transition to sustainable economy, the bank conducts diligent assessment of environmental impact of financed companies and discusses with them their possible options to reduce it.
"We organise sustainability discussions with our clients to discuss related legal and business aspects, corporate sustainability initiatives and investments, the role of the bank in reducing company's impact on the environment. We notice that these matters are of special importance for all companies. Usually, top managers and shareholders of companies participate in such discussions", said SEB Bank's representative.
V. Juzikis hears companies mentioning at the discussion a lot of challenges faced when assessing their impact on environment and business sustainability. Collection and processing of data measuring sustainability require a lot of efforts and specialists' assistance. It is not clear yet, when and which data must be tracked and reported, because companies do it differently, therefore information becomes more complicated to embrace and analyse.
"Having examined still limited number of Lithuanian corporate sustainability reports available, we observe the very first steps being made in this field. It applies not only to Lithuania, but to the whole region. We hope the ambitious policy and measures of the European Union will help companies to organise their activities in pursuit of sustainability goals and to provide all necessary information, especially, as interests and efforts of companies to do so are visible indeed", said Juzikis.
The bank also puts active efforts to contribute to fight against climate change. SEB Group set the target to become a climate-neutral organisation by 2045, and to cut down CO₂ emissions by two thirds, if compared with the figures of 2008. However, the member of SEB Bank Board notes that the bank is making even bigger impact reducing climate change indirectly: by financing sustainable business projects, providing environmentally-friendly services.
Interest in them is rapidly growing. For example, the number of newly-granted green leasing agreements in SEB Lithuania was more than four times bigger in the first quarter of this year, than during the same period last year. SEB Bank also was among the green bond pioneers by creating the concept of such bonds with the World Bank back in 2007. The first Lithuanian company that distributed green bond emission together with SEB Bank was Lietuvos energija (Lithuanian Energy). According to V. Juzikis, the demand for the bonds of EUR 300 million issued in 2017 was bigger than the supply by several times.
"Move towards sustainability requires long-term efforts. It is more like a marathon, rather than a sprint. Choosing sustainability direction is promoted also by international law, priorities and expectations of institutions, business, consumers. We all together walked into the period of one of the largest changes of this time, which will impact capital flows, financing, modes of activity, price of products and services, and finally, attitude and our role in the world. I can only wish Lithuanian companies to join this journey", said V. Juzikis.
Comment from the conference held in Lithuania to discuss sustainable business development, video record is available here: https://youtu.be/G33vr-F315Y.