Comprehensive sustainability – no taxonomy without data

In the last few days, two important studies* have been published with substantial participation of the private sector. These studies once again emphasise the great importance of the financial sector for the transformation of the economy towards more sustainability. The studies attest that financial centres and banks have made great progress in their efforts. This is especially remarkable in light of the current pandemic, which also poses a major challenge to the entire economy. At the same time, both studies clearly show that in the area of climate change, for example, the path to the 1.5 degree target or even to net zero emissions is still long. Major global efforts are needed. The interplay between countries and companies must be well coordinated and further intensified to achieve these goals. The two studies offer a wealth of information and suggestions. Here are just a few of the major insights:

• Through determined leadership, Europe should continue to pursue transformation of the economy in the direction of more sustainability. Governments and the private sector agree that government regulation is needed to sustain the necessary momentum. In particular, regulation for a uniform and clear taxonomy must be advanced further. For the private sector, it is crucial that the taxonomy is pragmatic and implementable. This is the only way to quickly increase the acceptance of sustainable investments. Banks continue to expect that there will ultimately not be different standards worldwide. The EU should therefore ensure on an ongoing basis that its preliminary work has international support.

• One of the greatest challenges identified is the general availability and quality or reliability of data. Only if this is guaranteed can fair comparisons be made and generally binding standards be introduced. A meaningful taxonomy without the right data is impossible. The accelerating digitalisation of the economy and of society as a whole can provide important support in this regard.

• Sustainable behaviour should not focus solely on combating climate change. Financial centres and their stakeholders should use the 17 SDGs (Sustainable Development Goals) of the United Nations as guideposts. In Liechtenstein, this is preaching to the choir, given that the country and its banks have long been pursuing a very comprehensive approach to sustainability with a wide range of initiatives such as the fight against modern slavery.

• In the implementation of the Sustainable Development Goals, there are still major differences among financial market stakeholders and the products offered. Capital markets (e. g. green bonds) have already come a long way, for example: 38 % of the participants in the FC4S study have already identified clearly defined stock market segments for sustainable investments worldwide. In contrast, there is still a lot of catching up to do in sustainable banking and even more so in sustainable insurance.

Both studies positively note, however, that awareness of sustainability has continued to increase within both the public and private sector as well as within society as a whole. The resulting push and pull factors will ensure that the issue remains high on the agenda. The recently published, internationally coordinated PACTA climate compatibility test also shows that awareness in Liechtenstein has increased strongly. In terms of implementation, however, the test still identifies great potential for climate-friendly investments. Given our stability as a financial centre and country, we in Liechtenstein are in a good long-term position to master this challenge. ​​​​​

*Testing the application of the EU Taxonomy to core banking products (EBF)
  Shifting Gears (Financial Centres for Sustainability FC4S)