The Challenge of Combining Economy and Sustainability

Green Paper on Sustainable Finance

Mónica Malo, Director of Sustainability at CECA, participated in the Capital Letters forum organized by Harmon, where various experts from the public and private sectors gathered to explore the keys to a project aimed at integrating economic growth and sustainable development at all levels.

Not long ago, when public opinion questioned the existence of climate change and the mere act of recycling was viewed with suspicion, the union of sustainability and economy sounded, at best, like a daydream. However, today the reality is quite different: sustainable and responsible investment has increased in recent years to reach $35 trillion. A sign that sustainable finance is not only profitable for the planet but also for businesses.

With this approach, the Capital Letters forum by Harmon brought together experts from different sectors to examine the Green Paper on Sustainable Finance just hours after the publication of the order announcing the establishment of the Sustainable Finance Council, one of its main measures. The goal: to analyze the key points of the document and to investigate the challenges it introduces by putting letters to numbers, as the forum’s slogan states.

The Green Paper on Sustainable Finance is a strategic project approved by the Spanish Government – with its draft published last September – which aims to drive and guide the adaptation of companies and financial entities to the European framework of sustainable finance to promote the transition towards a carbon-neutral economy. Moreover, it will further strengthen the relationship between economy and sustainability – and between administration and business –.

Caring for the planet is profitable

Entities such as the International Monetary Fund (IMF) predict that, although global warming mitigation policies may incur short-term economic costs, these are minimal compared to the benefits of acting in time. This was referred to by Ana Puente, Deputy General Director of Sustainable and Digital Finance at the Ministry of Economy, Trade and Business, at the beginning of her speech: “Not acting against climate change has long-term consequences that are economically untenable. We cannot afford the impact of a disorderly transition.”

As a roadmap to prevent this from happening, the Green Paper identifies three key actors for this challenge: the public sector, the business sector, and the financial system, and it has “an ambitious yet realistic approach,” according to the Deputy General Director.

Additionally, the draft proposes three objectives: to promote the adaptation of the financial and business sector through measures such as the creation of a sandbox (a regulated environment where companies can develop and evaluate innovative sustainability projects under the supervision of the relevant authorities) and a repository for disseminating sustainability information; to direct savings and investments towards sustainability by promoting green products and the Treasury’s green bonds program; and to enhance public-private collaboration through the establishment of the Sustainable Finance Council.

Rowing together is essential to reach a safe harbor

The implementation of CSRD (Corporate Sustainability Reporting Directive) or the application of NEIS (European Sustainability Reporting Standards) in 2024 leaves no room for doubt: the EU is turning green. In this context, the Green Paper approved in Spain marks a new milestone in the region in the field of sustainable finance. David González, representative of the European Investment Fund (EIF) for Spain and Portugal, praised the market’s performance and shared a statistic: “Spain is the leading country in demand for financial entities seeking guarantees from the European Investment Fund to provide sustainable financing.” Since its inception in 1996, this organization has supported nearly 400,000 Spanish SMEs and has collaborated with 170 financial entities.

Regarding the measures outlined in the document, one of the most discussed was the creation of the Sustainable Finance Council. This governance body acts as a collaboration forum among public and private actors, including representatives from public administrations, supervisory bodies, the financial sector, the private sector, the third sector, and independent experts. Its main functions include promoting and monitoring the actions proposed in the Green Paper, analyzing challenges related to the regulatory framework of sustainable finance, and facilitating discussions on topics such as decarbonization, the circular economy, or biodiversity protection.

As announced in the BOE (Official State Bulletin), the body will consist of twenty non-nominate and renewable members and thirteen nominate members. “It is necessary to find a balance so that it is operational in decision-making and so that all stakeholders are represented, as it must be plural and inclusive,” explained Pedro Cadarso, ESG Risk Advisor at AEB (Spanish Banking Association).

For his part, Enrique Tombas, President of Suma Capital, added that consumers should be part of the organization’s discussions: “The transition will be much easier through conviction, not by imposition, and this comes when the entrepreneur sees that their client wants sustainable products.”

Andrea González, General Director of Spainsif, explained the fundamental role associations like hers – composed of various actors in the sustainable finance ecosystem – can play in the Council: “The body’s flexibility mechanism is a total and unequivocal success. The more multistakeholder they are, the better we can fulfill the function of conveying the sentiments of the many sectors represented in sustainable finance.”

The outstanding challenges

Among other measures in the Green Paper is the creation of a sandbox where, for example, financial entities will be able to propose methodologies for analyzing climate risks or identifying data gaps. Its practicality was highlighted by the ESG Risk Advisor at AEB: “We see it as a very useful platform for learning about the taxonomy, and we believe it can greatly reduce ambiguity and improve clarity and coherence in certain regulations.”

However, there was mention of the need to create a more favorable tax framework to incentivize investments in sustainability. For this, the implementation of deductions, credits, or tax exemptions was proposed to facilitate investment in renewable energy, support the circular economy, or decarbonize production processes. “It would be very welcome, but as it is a challenging topic, we have started to think about plan B: non-fiscal incentives for financial education or the market, through certain products,” argued the Director of Spainsif.

Mónica Malo, Director of Sustainability at CECA and Cecabank, agreed with González, adding: “From the banking sector, we are clear that, to stimulate that appetite, it is necessary to resort to fiscal incentives. We clearly have a very relevant role, but there are other levers that can be put on the table to energize the ecosystem.”

It is undeniable that the text represents a positive effort by the Administration to develop the role of the financial sector in the ecological transition, as well as to harmonize practices between the public and private sectors. However, like almost any guide, it has aspects to improve. Pedro Cadarso highlighted that “it has been very welcomed in the banking sector,” but they believe it is “necessary to appropriately assign responsibilities among public administrations, productive sectors, and the financial sector.”

An aspect that both Mónica Malo conveyed and added that “it is a very broad framework that requires many follow-ups”. The Director of Sustainability at CECA and Cecabank called for the establishment of more specific working groups and also for shared leadership and responsibility among the different agents, not just the banking sector.

Despite its limitations, the Green Paper on Sustainable Finance proved to be a great framework for advancing towards a sustainable ecological transition, and this Capital Letters meeting allowed shedding light on some of its more technical aspects, always in clear language. Because for the union between sustainability and economy to prosper, it is essential that they are heard and understood.