The Tashkent Times took an opportunity to talk about global trends and challenges of finance sustainability as a part of ESG with Dr. Peter Gassmann, Global Strategy& Leader, a key speaker of the panel session “Growth and Transformation from an ESG Perspective. Global Lessons Learned” hosted by PwC at the Uzbekistan Economic Forum, Samarkand, 3 - 4 November, 2022.

“ESG accepts definitions of relevant concepts, in order to create a new, common perception that will lead to increased levels of trust”, - says Dr. Peter Gassman.

Why do we have to proceed with development of finance sustainability?

Sustainability is becoming the defining paradigm for business, with Sustainable finance as a key enabler for achieving sustainable development objectives on a local and international level. However, despite the impressive recent growth, the sustainable finance market has a long road to maturity. And we must also take into account the fact that time is of the essence: There are just under eight years left to progress and achieve the UN’s Sustainable Development Goals (SDGs) by 2030 and require global investment ranging from US$5-7 trillion per year.

This means there is still a long way to go and we must cover it in a short amount of time. However, with swift endorsement and coordination, we can achieve the economic and sustainability impacts of sustainable finance.

As for ESG reporting, why is it important? How do you foresee the development of ESG ratings?

As far as ESG standards and report methods and requirements are concerned, corporations and regulators are overwhelmed with different methodologies, resulting in confusion, significant challenges in comparability of reporting, risk of cherry-picking metrics and ample possibilities of greenwashing.

At the same time, major global events, such as the war in Ukraine, the pandemic and the energy crisis act as accelerators, specifically in regard to the social and governance aspects of ESG. These crises highlight the need for strong regulatory structures that are determined by values of transparency and morality, while corporate governance is integral to maintaining social structure.

And I cannot overstate enough that trusting what is reported is accurate is key to ensuring the effectiveness of capital markets.

Furthermore, one must understand that current standards are more of a point in time observation. Instead, and in addition to that, we should also consider how we observe and measure transformations and ongoing processes.

This global shift severely impacts all major companies, since they will need to undergo significant transformation in order to achieve these goals. And towards this end, we need a more dynamic way of understanding that roadmap, thus helping to capture their progress.

And what are the challenges on the way to sustainable finance issuance?

As far as challenges are concerned, one can name the fact that potential issuers face barriers to sustainable finance issuance and at the same time investors have difficulties comparing sustainable securities. As I mentioned earlier, ESG ratings have unclear methodologies, inconsistencies and lags, and these complexities lead to longer timescales of issuing sustainable securities and unclear project pipelines. Another issue that comes into play is the reputational risks to investors and issuers if accused of greenwashing, since corporations face unclear disclosure standards which hinder comparison. And on a final note, despite the recent growth, it is still difficult to find sustainable financing that meets investor needs on ticket size and risk-return profile, given that, whilst primary market demand is strong, the secondary market remains weak.

Can these challenges be successfully tackled and is there a framework in place, able to facilitate the process?

Indeed there is, and to our good fortune, it is one that is already in place. I am referring to financial market infrastructures (FMIs), which are key components of the financial system, delivering services critical to the smooth functioning of financial markets.

FMIs have experience creating informational and connectivity efficiencies in traditional financial markets. Thus, the market can draw upon this experience to solve some of the fundamental challenges sustainable finance faces globally today.

Given the fact that the ability to transfer rules-based information within FMI systems already exists in the market, incorporation of ESG disclosure data files might be a relatively seamless addition to the market. To quantify the implication of this development, we believe that a cross-border FMI-driven approach has the potential to uplift the growth of the sustainable finance market by up to 2.5%. This increase translates into up to US$25 trillion additional capital mobilized in the sustainable finance market by 2030. And the majority of this additional capital could be channeled to emerging and developing economies which are in dire need of sustainable investments.

Thank You very much indeed!