Sustainable finance

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FMA Annual Report 2021 TABLE OF CONTENT

SUSTAINABLE FINANCE

The financial sector can make a crucial contribution to achieving international sustainability goals, for example by offering sustainable investments. The focus is currently on environmental and climate risks. However, sustainability also encompasses responsible corporate governance and social aspects such as fair working conditions and respect for human rights.

Sustainable finance is understood to mean forms of

financial services in which financial intermediaries

integrate sustainability criteria – in particular environmental, social, and governance criteria – into their business or investment decisions. The aim is to achieve

sustainable benefits for the customer, the environment, and society.

While sustainability is not limited to the natural environment, the current focus is, indeed, on environmental and climate risks. As part of the Green Deal, the European Union has set itself the goal of making the transition to a modern, resource-efficient, and competitive economy. The goals include no net greenhouse gases emissions by 2050. Liechtenstein has committed to reducing its emissions by 40 % by 2030 compared to 1990. The financial sector can make a crucial contribution to achieving international sustainability goals, for example by offering sustainable investments. The inclusion of the financial services sector to achieve

these objectives relies on several legal acts, such as the sustainability-related Disclosure Regulation and the Taxonomy Regulation. In 2021, the FMA drafted the EEA Financial Services Sustainability Implementation Act on behalf of the Government to transpose the European requirements. These legal acts are intended, in particular by means of transparency rules, to redirect private capital flows in the direction of sustainable investments and prevent greenwashing.

Supervisory authorities consider climate risks to be a core risk for the financial sector. A distinction is

made between, firstly, physical risks such as extreme weather events or rising sea levels with all their consequences – for example, the collapse of supply chains – and, secondly, transition risks arising from the shift to a low-carbon economy, which may jeopardise companies and financial products that fail to

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adapt. Sustainability risks also arise when social and governance criteria are insufficiently taken into account, for example in the form of loss of reputation. Sustainability risks are therefore included in the risk management of financial service providers. Investing and acting ethically and sustainably and assessing counterparties in accordance with ESG criteria can greatly reduce the risk exposure of financial service providers.

Numerous financial market participants in Liechtenstein already have or are creating a sustainability strategy that largely incorporates the inclusion of sustainability risks and sustainability factors into their business strategy. Sustainable finance represents a challenge for financial service providers, but an active approach also offers great opportunities for the Liechtenstein financial centre.

For the FMA as a supervisory authority, sustainability has become a much more important topic: firstly, through legal acts at the European level, which are being transposed into national legislation in Liechtenstein, and secondly, through the inclusion of these rules in supervisory activities. In July, the FMA published a fact sheet for financial service providers on how to integrate sustainability factors into their business activities. The FMA itself likewise has a responsibility to incorporate sustainability more strongly in its thinking and action. Sustainability is a wide-ranging topic in the human resources strategy adopted in December. A dedicated sustainability strategy will also be developed in 2022.

ESG CRITERIA: ENVIRONMENTAL, SOCIAL, GOVERNANCE

The environmental, social, and governance criteria for sustainability are summarised under the abbreviation ESG. Key environmental criteria include climate protection, low-impact resource management, use of renewable energies, and reduction of the environmental footprint. Social criteria include the creation of fair working conditions, respect for human rights, and investment in workplace safety. Forced labour and child labour are also excluded. Governance refers to ensuring responsible corporate governance.