Malta Stock Exchange Introduces the ‘Malta Stock Exchange: Green Market’

In light of the rapidly growing sustainable debt market and as green finance continues to rise up on the agenda for investors, businesses and governments alike, the Malta Stock Exchange (the ‘MSE’) has introduced a new framework to encourage green finance in Malta, in the form of a Green Bond List (the ‘MSE GBL’). Potential issuers looking to obtain financing through the listing of qualifying securities on the MSE GBL may expect to benefit from (i) a 50% reduction in listing fees; and (ii) enhanced visibility to investors looking for green investments.

The MSE GBL will take the form of a ‘segment’ of the MSE main market and therefore although, in principle, the same listing rules should apply, there are certain additional criteria for admission to the MSE GBL over and above those applicable to ‘standard’ corporate main market listings. The framework describing such additional conditions takes the form of a series of additions to the MSE Bye-Laws (the ‘GB Ruleset’) which can generally be summarised as follows:

1. Green Bond Principles and Green Projects

The GB Ruleset defines ‘Green Bonds’ as debt instruments, the proceeds of which will be exclusively applied to finance or re-finance, in part or in full, new and/or existing eligible ‘Green Projects’. Therefore, in seeking a listing on the MSE GBL, a green bond issuer will (in addition to other standard listing criteria) need to demonstrate that it is pursuing a Green Project. A Green Project is generally, one which makes a substantive contribution to any one of six defined environmental objectives (without doing significant harm to any of the other five). These six defined environmental objectives are derived from the International Capital Market Association’s Green Bond Principles and cover:

1. Climate Change Mitigation;
2. Climate Change Adaptation;
3. Sustainable and Protection of Water and Marine Resources;
4. Transition to a Circular Economy;
5. Pollution Prevention and Control;
6. Protection and Restoration of Biodiversity and Ecosystems.

The GB Ruleset also provides a non-exhaustive list of potential qualifying ‘Green Projects’ which could generally include, projects targeting, inter alia:

• Renewable energy and energy efficiency;
• Pollution prevention and control;
• Environmentally sustainable management of living natural resources and land use;
• Terrestrial and aquatic biodiversity conservation;
• Clean transportation;
• Sustainable water and wastewater management;
• Eco-efficient and/or circular economy adapted systems and technologies; and
• Green buildings.
   

2. Utilisation of Bond Proceeds for Green Projects

Green bond issuers will need to have in place a policy on the management of proceeds generated from the green bond issuance and this must be clearly set out in the relevant offering documentation. Such issuers will also need to ensure that funds designated for Green Projects are kept in a separate account and each transaction tracked in an appropriate manner with an established formal internal process to ensure transparency on how each transaction is related to achieving the Green Project’s environmental objectives.  

3. The Accredited External Reviewer

The GB Ruleset introduces a new role in the form of the Accredited External Reviewer (‘AER’) whose main functions would be to confirm a green bond issuer’s: (i) initial admission to listing on the MSE GBL and (ii) ongoing compliance with the GB Ruleset.

When submitting an admission application to the MSE GBL, the issuer would need to provide the MSE with an AER report certifying that the bonds are eligible for admission to the MSE GBL in terms of the GB Ruleset. In this regard, the role of the AER would also extend to:

1. Confirming that a green bond issuer has employed/deployed sufficient reporting mechanisms in conformity with established green bond standards;
   
2. Certifying that a Green Project has unequivocal clear environmental benefits, which have been assessed and, where feasible, quantified;
3. Verifying a green bond issuer’s declaration on the management of proceeds and internal tracking methods for the allocation of funds from green bond proceeds.

Following admission to the MSE GBL, issuers would need to ensure that eligibility is maintained and on an annual basis would need to provide the MSE with a report from the AER certifying such continued eligibility. Such a report would generally need to:

1. Provide a list of the Green Project/s that have benefited from the use of proceeds allocated;
2. Provide a description of each respective project, amount of proceeds allocated to each, progress on the project made since listing or last reporting date and how the specific project is meeting its environmental objectives;
3. Include financial metrics which give a clear picture of the issuer’s turnover, capital expenditure and operational expenses;
4. Where applicable, provide qualitative performance indicators and quantitative performance measure.

The MSE GBL ruleset also outlines the necessarily remedial steps and potential consequences to address a situation where the AER is not able to confirm continued eligibility.