Greenwashing concerns remain high, and increased scrutiny from regulators will keep the pressure on market participants to not cross the line. Michaelsen argues that it’s a concern that should be balanced with the need for action and innovation, as he wrote in this article in 2023.
Doubling down on ‘materiality’
From an industry perspective, “materiality” is one of the core concepts in the new era of sustainable finance. It means being relevant or significant. It is a key feature of sustainability-linked bonds and loans, where the selected sustainability targets must be material and ambitious.
The Sustainable Finance Disclosure Regulation (SFDR) is another key focus this year and one of the most significant pieces of EU ESG regulation in recent years, according to Michaelsen.
More broadly, when it comes to ESG reporting, 2024 is crunch time. 2023 was a big year for standards in the ESG reporting space, with the creation of the International Sustainability Standards Board (ISSB). Now the clock is ticking as the first batch of companies covered by the Corporate Sustainability Reporting Directive (CSRD) will need to start reporting for fiscal year 2024.
EU Green Bond Standard goes live
From a product perspective, the EU Green Bond Standard will be a focus this year. The final legislation for the voluntary standard was adopted in 2023, and we expect further alignment to take place in 2024, according to Michaelsen.
He notes that sustainability-linked bonds will remain a key tool for the market, but more work is still needed. The sustainability-linked bond format faced significant headwinds in 2023, with several issues raised around the structures and the ambition level of the sustainability targets.
Finally, Michaelsen emphasises that product innovation will be continue to be critical in 2024 in order to address major sustainability challenges and close the significant funding gap. He points to Nordea’s Sustainability-linked Loan Funding Framework as one such innovative structure, which allows investors to invest in Nordea’s sustainability-linked loan financing activity. In 2023, Nordea issued an inaugural EUR 1 billion bond under the framework.
“This type of innovation is crucial as it helps direct money to the places it needs to go to drive the transition,” he says.