Current developments in green finance
Although the Czech Republic is hardly a European leader in green investment and sustainable finance, financial institutions, headed by big banks, are getting ready for the new regulation. Apart from increasing transparency, the following years will focus mainly on resetting internal processes and portfolio structures.
A survey carried out by KPMG in the first quarter of 2021 among large and smaller banks operating in the Czech market showed that the big players in particular are placing increasing emphasis on diversity and investments in green projects. This shows that investment trends and the regulatory environment are fulfilling their purpose. On the regulatory part, the SFDR Regulation promoting greater transparency, and the Taxonomy Regulation determining what investments shall be considered environment-friendly, contribute significantly to this.
At present, relevant financial institutions are obliged to disclose information regarding transparency in the context of sustainability and related risks: in particular their general policy, remuneration principles, and integration of sustainability risks. The Czech National Bank's approach to information disclosure, especially as regards the integration of sustainability risks, has been rather extensive so far; therefore, in accordance with best practices, we recommend disclosing this information not only in the statutes, but also in key information documents.
In the next phase, financial institutions must prepare for disclosing information at the level of individual financial products, which will be provided for in detail by regulatory technical standards (RTS). The revised RTSs are still expected to enter into effect on 1 January 2022.
The next step towards climate change mitigation and adaptation can also be seen in the Taxonomy Regulation: by adopting this implementing act on EU taxonomy, the European Commission specifies what economic and other activities substantially contribute to achieving the set environmental objectives. This implementing regulation is also due to enter into effect on 1 January 2022.
In the context of green investments, the question arises when and to what extent these investments shall be treated preferentially before the law and by the banks when scoring companies before providing bank finance. On the other hand, there are also voices asking whether such preferential treatment is economically appropriate. Detailed discussions on these topics are to be expected in the coming months. We will see in which direction and at what pace green finances will develop.