With the demand and need for sustainable finance continuously increasing, the European Union is seeking to regulate the market in order to establish a harmonized framework so that sustainable finance may flourish. The introduction of the Legislative Package (comprised of the Taxonomy Regulation, the Disclosure Regulation and the Benchmark Regulation) establishes a framework with the purpose of facilitating sustainable investment (which, in turn, will contribute to the fulfillment of certain goals and objectives as set out in the United Nations Sustainable Development Goals and the Paris Agreement).

As can be seen in other jurisdictions, and in other specific circumstances, an effective method of promoting sustainable finance and sustainable investment is to designate specific trading venues on which sustainable finance products can be listed and traded. To draw a parallel with the EU's efforts to enhance SME's access to the capital markets, this would be akin to the designation of certain markets as SME Growth Markets.

The current green bond market (green bonds being one product in the plethora of sustainable financial products) is supported by several internationally recognised standards which set out basic requirements for financial products to qualify as "green bonds". When issuing green bonds (ideally on trading venues designed for the purpose), issuers of green bonds and other sustainable securities benefit from greater marketability and exposure, whilst investors can take advantage of a repository of green, social and sustainable opportunities for free, with widely unrestricted access to available information relating to a security displayed on the green stock exchange translating to lower costs of research, analysis and comparison.

This article endeavours to highlight how other EU Member States, in particular, Luxembourg, have successfully focused their efforts on the establishment of a green stock exchange in order to promote, incentivise and safeguard sustainable finance, and thus contributing to the fight against climate change and social injustices.

The Luxembourg Green Exchange ("LGX"), is to date the only green stock exchange which provides a platform dedicated specifically to green, social and sustainable securities. LGX aims to provide an ecosystem on which bonds, funds and other products focused on environmental, social and governance ("ESG") considerations can thrive.

The LGX currently holds 50%of all listed green, social and sustainability bonds globally and, also hosts socially responsible investment (SRI) funds. It achieves this through flexibility –not limiting itself to one specific ESG standard or framework but by allowing issuers to choose from several different standards and frameworks, taxonomies and labels. Within the industry's best practices, LGX recognises in particular ICMA's Green Bond Principles (GBP), the Climate Bonds Initiative's (CBI) Climate Bonds Standard (for green bonds), the ICMA's Social Bond Principles (SBP) and the ICMA's Sustainability Bond Guidelines (SBG).Therefore, for the financial instrument to be accepted, the LGX requires that it be aligned with a recognised international standard or label, while also requiring it to comply with strict LGX eligibility criteria. The LGX is also the only exchange that requires issuers to commit to post-issuance reporting (in respect of their chosen framework) once a security has been registered or listed, which in turn contributes to the integrity of the security and further contributes to the extinguishment of green washing – a process of conveying a false impression or proving misleading information about the 'greenness' of a company or its products to deceive consumers and investors.

Whilst the LGX has extended its platform far beyond the constraints of the EU with the application of internationally recognised practices as previously mentioned, a similar strategy may not necessarily work well in Malta. Taking into consideration Malta's market size, resources and labour force, it would be somewhat facetious to expect that Malta compete with a well-established platform like LGX, adapting the framework of the LGX to what Malta has to offer might be a more viable solution.

A dedicated Maltese platform would (and should) provide access to a broad range of green, social and sustainable bond issuers, as well as ESG asset managers. It would need to publish dedicated information on sustainable investments and announcements, and work tirelessly to promote, encourage and maintain sustainable finance. In fact, if Malta were to open the market to foreign listings it would present great potential to mirror and improve on the efforts of the LGX.

The above being said, a platform dedicated to sustainable financial products will not be the answer to all our problems but can be a cog in a much larger wheel. The inception of a dedicated platform would also need to be complemented by other incentives. Other governments have invested substantially to promote the transition to a circular economy, to the extent that they offer great fiscal and tax incentives and benefits for issuers and investors alike. In order to stimulate more activity to the market, the Belgian Government offers additional tax credit for interest paid on green loans and allows companies to claim a tax deduction for climate friendly or energy saving investments. A similar scheme is used in the Netherlands whereby individuals who invest in a green loan receive a tax incentive. In this case, an investor who would normally pay 1.2% capital gains on tax would benefit from a reduction as when it comes to green loans, the maximum green capital is capped at €55,0000 per person. In Sweden, the government has appointed a committee looking into possibilities of introducing a tax incentive scheme enabling individual investors to invest into green projects. As a result of the committee's recommendations, a green fund from which loans/credit can be provided for certified green projects as well as tax reductions for investors has been created.

Beyond Europe, Singapore has provided a professional fund for both first-time issuers and repeat issuers. The qualifying issuance must be a minimum size of $200 million or a bond programme size of at least $200 million with an initial issuance of at least $20 million, and a minimum tenure of 1 year. The grant supports costs incurred in respect of the independent external review or rating done based on any internationally recognised green, social, and sustainability bond principles or framework. All these incentives and measures could easily be proportionately adopted by Malta.

An interesting parallel is with respect to Malta's rebate schemes regarding electric and certain type of hybrid vehicles as well with the installation of solar panels and other measures for renewable energy. The implementation of such rebates has encouraged consumers to integrate ESG considerations into their decision making and as a result, encouraging consumers to make an environmentally conscious purchase. Creating a platform open to the rest of Europe would, in conjunction with adequate fiscal assistance both for the issuers and the investors, propel the industry to much greener pastures.

Furthermore, all of the above mirrors that which was mentioned in the Malta Budget 2021 i.e. Malta Stock Exchange's intention to incentivise investors to issue Green Bonds to contribute to Malta's commitment to realising its Low Carbon Development Policy.

In conclusion, by coming up with a framework for a trading venue dedicated to sustainable financial products (which venue must necessarily be open to foreign listing) backed by legitimate incentives, Malta has the ability, along with the rest of the EU, to contribute to the creation and maintenance of sustainable economy.

The authors would like to thank Giannella Vella, student intern at Ganado Advocates, for her invaluable help in drafting this article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.